 "Sun Pharma")
Shares of Sun Pharmaceutical Industries slipped 3 per cent to Rs 960 on the BSE in Monday’s intra-day trade after the company in an exchange filing said that the United States Food and Drug Administration (USFDA) has asked the drug maker to take certain corrective actions at the Mohali facility before releasing further final product batches to the US.
“The company has received a letter titled “CONSENT DECREE CORRESPONDENCE/NON-COMPLIANCE LETTER” from the USFDA,” Sun Pharma said in an exchange filing.
USFDA has directed the company to take certain corrective actions at the Mohali facility before releasing further final product batches into the US. These actions include, among others, retaining an independent current good manufacturing practice (CGMP) expert to conduct batch certifications of drugs manufactured at the Mohali facility, the company said.
Sun Pharma said the company is taking required corrective steps, but there will be a temporary pause in release of batches from Mohali until USFDA mandated measures are implemented. US shipments from Mohali will resume once these measures are in place. The facility is already classified as OAI (official action indicated) after the inspection in August 2022.
The Mohali facility is for oral solid formulation. The facility was inspected six times in the past since 2011. It was put under import alert in 2013 following the inspection in 2012. The import alert was lifted in 2017.
Since 2017, analyst at Nomura estimate that ~13 products were approved from the site. The foreign brokerage firm estimate that the sales contribution from the Mohali site for the US business is ~$100-150 million (annualised) with the largest contribution from gPentasa (more than 50 per cent of the sales). The other large products from the site include Pantoprazole ODT and Diltiazem caps XR.
Since Sun Pharma is the only generic in gPentasa, it is likely to be a very high-margin product. Hence, the stoppage of supplies can adversely impact profit margins in the near-term. Assuming $30 million of quarterly sales from the site, a quarter of the disruption could impact EPS by around Rs 0.60 (1.5 per cent of FY24 EPS of Rs 38.5). The company has not indicated a tentative timeline for a resolution yet, analysts at Nomura said.
The brokerage firm maintains ‘Buy’ rating on Sun Pharma with its target price of Rs 1,190, which is based on 26x FY25F EPS of Rs 45.6. Over the past two years, the stock has traded between 22x and 27x one-year-forward earnings. The stock is currently trading at 25.6x/21.7x FY24F/25F EPS of Rs 38.5/Rs 45.6.
This erstwhile Ranbaxy facility has been under the Consent Decree from the USFDA since 2013 when it received import alert (lifted in 2017). The above action pertains to 2022 inspection and subsequent OAI status. Although the overall impact could be minimal (being an OSD facility), this may lead to stricter scrutiny for other plants, said ICICI Securities.
Technical View
Bias: Negative
Target: Rs 925; Rs 885
Support: Rs 964; Rs 950
Resistance: Rs 982; Rs 992; Rs 1,000
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The stock has been trading with a negative bias since the last two weeks. From a high of Rs 1,024 on April 13 the stock has slipped over 6 per cent to hit today's low at Rs 959.
In the process, the stock is once again seen testing the 200-DMA on the daily chart, which now stands at Rs 964. Earlier in the March, too, the stock tested the 200-DMA (Daily Moving Average) on multiple occasions, and then pulled back to the high in April.
However, the momentum oscillators on the daily chart have given a negative divergence. Hence, the 200-DMA may be under threat this time around. The Directional Index, MACD and Slow Stochastic - are in favour of the bears on the daily chart.
In case, the stock breaks the 200-DMA, which also coincides with the lower-end of the Bollinger Bands on the daily chart, the next immediate support for the stock stands in the Rs 945 - Rs 950 range, indicates the weekly chart. Thereafter, the stock may test the weekly trend line support at Rs 925-odd level or may even dip all the way towards the 100-WMA (Weekly Moving Average) at Rs 885-odd level.
In case of a bounce back, the stock could face resistance around the 20-DMA and 50-DMA at Rs 992 and Rs 982 respectively. The bias is likely to remain negative as long as the stock trades below the 100-DMA at Rs 1,000.
(With inputs from Rex Cano)
