 "Sun Pharma: It is down but not out")
The Sun Pharma stock got some respite last Friday as the company announced plans to acquire branded oncology product Odomzo from Novartis in the US. Sun, which will be making an upfront payment of $175 million followed by milestone payments, will not have to wait long for gains to accrue as this product has already received commercial approvals in the US and Europe.
It is also to be launched in other geographies as Sun will acquire marketing rights in 30 countries. With the product likely to generate $60-80 million (Rs 400-550 crore) in annual sales for the company, according to the estimates of Elara Capital, this comes as good news for investors. Sun’s share price also gained 2.7 per cent on Friday.
The move is also in line with Sun’s focus on expanding its specialty product range. Odomzo is prescribed by dermatologists and ophthalmologists. The company had also announced launch of its first ophthalmology branded product in the US a few days ago as it concluded the acquisition of 100 per cent stake in Ocular Technologies Sarl.
While these initiatives should support Sun’s growth, there are overhangs, too. The firm’s share price has come under pressure in the past few days as drug-pricing collusion investigations gathered momentum in the US. This has added to the already weak sentiment.
Analysts, however, say the market’s reaction is more than the impact on fundamentals. They believe the drug-pricing collusion charges are not easy for investigators to prove and will be a long-drawn case. On the Halol plant, while fresh observations have delayed its clearance which is a disappointment, analysts at Edelweiss say there’s no further grievance beyond the original September 2014 observations and qualified opinion indicates Sun will be able to resolve these in a re-audit. Analysts at Kotak Institutional Equities, too, expect resolution of Halol in FY18. While they add that every quarter, delay will lead to an impact of 2-4 per cent on their FY18 estimate, they do not see a material impact to their FY19 estimates for Sun.
The Street is expecting subdued growth FY18. But, with the stock hitting closing lows of Rs 609.20 (last seen in June 2014) on Thursday, valuations at 20 times one-year forward earnings are inexpensive. Analysts at Elara, which have a price target of Rs 856, feel the stock is trading at attractive valuations. The consensus price target, according to Bloomberg poll of analysts, is Rs 831.
It is also to be launched in other geographies as Sun will acquire marketing rights in 30 countries. With the product likely to generate $60-80 million (Rs 400-550 crore) in annual sales for the company, according to the estimates of Elara Capital, this comes as good news for investors. Sun’s share price also gained 2.7 per cent on Friday.
The move is also in line with Sun’s focus on expanding its specialty product range. Odomzo is prescribed by dermatologists and ophthalmologists. The company had also announced launch of its first ophthalmology branded product in the US a few days ago as it concluded the acquisition of 100 per cent stake in Ocular Technologies Sarl.
While these initiatives should support Sun’s growth, there are overhangs, too. The firm’s share price has come under pressure in the past few days as drug-pricing collusion investigations gathered momentum in the US. This has added to the already weak sentiment.
Analysts, however, say the market’s reaction is more than the impact on fundamentals. They believe the drug-pricing collusion charges are not easy for investigators to prove and will be a long-drawn case. On the Halol plant, while fresh observations have delayed its clearance which is a disappointment, analysts at Edelweiss say there’s no further grievance beyond the original September 2014 observations and qualified opinion indicates Sun will be able to resolve these in a re-audit. Analysts at Kotak Institutional Equities, too, expect resolution of Halol in FY18. While they add that every quarter, delay will lead to an impact of 2-4 per cent on their FY18 estimate, they do not see a material impact to their FY19 estimates for Sun.
The Street is expecting subdued growth FY18. But, with the stock hitting closing lows of Rs 609.20 (last seen in June 2014) on Thursday, valuations at 20 times one-year forward earnings are inexpensive. Analysts at Elara, which have a price target of Rs 856, feel the stock is trading at attractive valuations. The consensus price target, according to Bloomberg poll of analysts, is Rs 831.