 "Sun Pharma: Is the Street's nervousness justified?")
Sun Pharmaceutical Industries' stock, which lost 4.2 per cent on Thursday following the US Food and Drug Administration (FDA)'s surprise inspection at its Halol plant in Gujarat, fell another two per cent on Friday, upon its US subsidiary, Taro, recalling a product. Two lots of anti-clot drug Warfarin, which contributes five per cent to Taro's sales and one per cent to Sun's overall sales, according to analysts, have been recalled.
Earlier this year, Sun had also received negative observations for its Kharkadi unit and had to stop export to the US. Although the unit wasn't a major contributor to its US sales, the Halol plant is. Analysts estimate the unit to be contributing 40 per cent to Sun's US sales and 25 per cent to consolidated profits. The concerns are also raised as this inspection is believed to be, on the back of products recalled of late.
The three important medicines recalled from the US market are 40,000 bottles of anti-depressant Venlafaxine Hydrochloride extended-release generic tablets after it failed dissolution test, anti-cancer Gemcitabine because of sterility assurance and anti-diabetic Metformin for packaging problems (Gabapentin tabs found in Metformin bottles). While all recalls were limited to specific batches, all three products are manufactured at Halol, says Sarabjit Kour Nangra at Angel Broking, who feels in case of any adverse impact the stock could witness a dip of about 15 per cent.
However, product recalls and taking corrective measures is a routine process followed by most companies catering to the US market. Also, inspections, too, take place (Halol was inspected in 2012) and hence, till the FDA doesn't find any violation of good manufacturing practices, there is not much to worry. Therefore, investors should await clarity on the issues, which should come by next week. If no negatives are there in the observations, the correction will be a good opportunity to enter the stock.
For now, Sun's growth prospects remain strong. Its products in the US are doing well because sales continue to be driven by acquired companies such as Taro, DUSA and URL Pharma. It is also in the process of completing the acquisition of Ranbaxy. The acquisition on completion will be earnings-accretive for Sun, as analysts see it monetising the exclusive launch opportunities of certain generics Ranbaxy has been unable to do, as well as future launches. Analysts at Credit Suisse had increased their target price to Rs 950 on September 8. They remain positive on Sun, with visibility on growth increasing after the Ranbaxy acquisition, Gleevec settlement (with Novartis paving way for US launch), and the Taro price increase. While consensus target price is Rs 865, most analysts who have rated the stock in the past two days remain bullish, with the target price close to current levels.
Earlier this year, Sun had also received negative observations for its Kharkadi unit and had to stop export to the US. Although the unit wasn't a major contributor to its US sales, the Halol plant is. Analysts estimate the unit to be contributing 40 per cent to Sun's US sales and 25 per cent to consolidated profits. The concerns are also raised as this inspection is believed to be, on the back of products recalled of late.
The three important medicines recalled from the US market are 40,000 bottles of anti-depressant Venlafaxine Hydrochloride extended-release generic tablets after it failed dissolution test, anti-cancer Gemcitabine because of sterility assurance and anti-diabetic Metformin for packaging problems (Gabapentin tabs found in Metformin bottles). While all recalls were limited to specific batches, all three products are manufactured at Halol, says Sarabjit Kour Nangra at Angel Broking, who feels in case of any adverse impact the stock could witness a dip of about 15 per cent.
However, product recalls and taking corrective measures is a routine process followed by most companies catering to the US market. Also, inspections, too, take place (Halol was inspected in 2012) and hence, till the FDA doesn't find any violation of good manufacturing practices, there is not much to worry. Therefore, investors should await clarity on the issues, which should come by next week. If no negatives are there in the observations, the correction will be a good opportunity to enter the stock.
For now, Sun's growth prospects remain strong. Its products in the US are doing well because sales continue to be driven by acquired companies such as Taro, DUSA and URL Pharma. It is also in the process of completing the acquisition of Ranbaxy. The acquisition on completion will be earnings-accretive for Sun, as analysts see it monetising the exclusive launch opportunities of certain generics Ranbaxy has been unable to do, as well as future launches. Analysts at Credit Suisse had increased their target price to Rs 950 on September 8. They remain positive on Sun, with visibility on growth increasing after the Ranbaxy acquisition, Gleevec settlement (with Novartis paving way for US launch), and the Taro price increase. While consensus target price is Rs 865, most analysts who have rated the stock in the past two days remain bullish, with the target price close to current levels.