1. Jefferies maintains buy call on Sun Pharma despite adverse guidance

Jefferies maintains buy call on Sun Pharma despite adverse guidance

International brokerage house Jefferies said it is positive about Sun Pharma's strong key fundamentals, though its stock plunged 15 per cent today, a day after the company warned of a deeper cut in bottomline and topline this year due to ongoing integration with Ranbaxy.

By: | Published: July 22, 2015 4:40 AM

International brokerage house Jefferies said it is positive about Sun Pharma’s strong key fundamentals, though its stock plunged 15 per cent today, a day after the company warned of a deeper cut in bottomline and topline this year due to ongoing integration with Ranbaxy.

Following the adverse guidance, the Sun Pharma counter fell by a massive 15.06 per cent at Rs 805.25 on the BSE, pulling down the main index Sensex by 0.84 per cent.

“We have been positive on Sun Pharma due to key factors like strong product pipeline in the US and emerging markets, significant synergy benefits from Ranbaxy and upside from R&D pipeline including MK-3222. The management commentary on all these is very positive despite the disappointing FY16 guidance,” Jefferies said in its report.

Accordingly, the company has given a buy call on the stock with a price of Rs 1,100.

“Yesterday, Sun Pharma gave a guidance of flat or declining sales in FY16 over FY15 led by delay in Halol unit’s resolution and discontinuation of low margin businesses. It also expects to incur further integration costs in FY16. The FY16 guidance is in our view conservative,” Jefferies equity analyst Piyush Nahar said in the report.

Management indicated that the only business facing challenge is Halol unit which contributes 10 per cent of sales. “Even a 60 per cent decline in production implies that the discontinued business should be 9 per cent of sales which is very high in our view. We expect Sun to see 3-4 per cent topline growth in the year,” Nahar said in the report.

The brokerage also expects a revival for Sun Pharma in FY17 because significant number of products from Halol unit are low competition which should allow the company to regain market share, the report said.

Sun has one of the strongest product portfolios and pipelines among Indian companies. Over the past few years the portfolio has provided significant short and medium term opportunities like Lipodox and Taro, the report said.

“We believe that there could be similar opportunities going forward also. The key option in the near term is MK3222. In its commentary, the management was very positive on the drug and expected significant benefit going forward. It has formed a dedicated team for the product in US and we believe it is looking for a late FY17 launch,” the report said.

The report also noted that the management was also very positive on Ranbaxy. It mentioned that unless they severely mismanage the integration the acquisition would be EPS accretive in FY18.

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