Sun Pharma: Not much pain

The recall of anti-diabetic tablets from the US markets should not cost the firm too much.

The Sun Pharma stock lost about 5 per cent in two trading sessions before recovering 3.5 per cent on Thursday. The Street has been anxious because the US FDA had asked Caraco, a 76 per cent subsidiary of Sun, to withdraw several batches of Metformin""-an anti-diabetic tablet.

According to the authorities, the tablets in some of the batches were either oversized or undersized. The loss to Caraco, on account of the recall of the medicines, is not expected to be very significant say analysts, estimating that it could be about Rs 50 lakh.

The other reason for the fall in the Sun Pharma stock has been the overhang of stock due to the conversion of foreign currency convertible bonds into shares. About 50 lakh shares have been issued to bond holders of which half have been listed so far.

The stock may see some more weakness when the remaining shares are listed. Meanwhile, Taro an Israeli generics player that Sun has bought out, was back in the black posting a net income of $ 29 for CY07 on revenues of $313 million up 70 per cent.

Sun is expected to close FY08 with revenues of Rs 2,600 crore and net profits of close to Rs 980 crore, an increase of 17 per cent over FY07. At Rs 1255, the stock trades at about 22 times forwards and is not cheap though it does command a premium over its peers thanks to its strong operating margins of over 30 per cent.

Print media: Paper play

Newsprint prices have been moving up steadily over the last three or four months and are now up about 12 per cent from their lows last year, mainly due to supply side constraints.

Industry watchers believe they could remain firm for another six months as a result of which average prices for FY09 could end up at around Rs 31,500 per tonne. That would be an increase of about 15 per cent over prices in FY08, which should be close to Rs 27,500 per tonne.

In fact thanks to the appreciating rupee and also because of slightly lower dollar prices, companies could actually save some money in the current year.

Newsprint costs typically account for about 40 per cent of total costs though the percentage could vary depending on how much is imported and the quantum imported, say analysts.

That's one reason why prices of print media stocks such as HT Media, Deccan Chronicle and Jagran Prakashan have come off ""all three have yielded about 40 per cent since the start of the year.

Indeed the higher raw material bill could upset profit numbers for newspaper firms especially those that import newsprint. In the case of the Rs 1,040 crore HT media for instance, profits could be lower by about 15 per cent for FY09. The firm is expected to close FY08 with revenues of Rs 1,225 crore and a net profit of Rs 120 crore.

The print media industry it is estimated will grow by about 12 per cent compounded over the next three years to Rs 20,000 crore by FY11 with advertising revenues tipped to double from the current size of Rs 6,500 crore to about Rs 13,000 crore and circulation bringing in the rest.