Shares of Sun Pharmaceutical saw the biggest ever single-day fall after the company issued a revenue warning for full-year fiscal 2016. The stock lost Rs 141.50 or 14.95% to end at Rs 805.30 on BSE.
More than 3.56 crore shares exchanged hands on BSE and NSE. Tuesday’s volume spiked 17.2 times its 5-day average volume of 20.72 lakh shares and 11.57 times its 30-day average volume of 30.79 lakh shares.
Late on Monday, Sun Pharma warned its FY16 consolidated revenue could remain flat or decline as its integration with Ranbaxy is still in the process of streamlining as there is huge “mismatch” between both the companies. Sun Pharma’s founder and MD Dilip Shanghvi predicted cost escalation, especially in the research and development vertical.
Mumbai-headquartered Sun Pharma said it was also battling with supply constraints after the US FDA issued an import alert on Halol facility which accounts for nearly 35% of Sun Pharma’s US sales and 25% of consolidated profit of the company, noted Sun Pharma in its statement. The ban meant that Sun Pharma would not be able to export any of the drugs manufactured in Halol plant to US, the biggest market for Sun Pharma.
“We reckon that Halol has received a ‘483, management stated that they would resume supply once all the compliance related queries have been resolved. While it is difficult to predict timelines, we watch out for end of third quarter of FY16 as a critical timeline which would be 12 months from the issuance of US observations,” the statement said.
Analysts acknowledged that the company’s announcement was disappointing but clarified its negative impact on the long-term financial performance. The Street believes all shortcomings mentioned are one-time expenses and non-recurring, and hence its impact would be limited.
“We have been positive on Sun Pharma due to three key factors…strong product pipeline in US ….significant synergy benefits from Ranbaxy and upside from R&D pipeline including MK-3222. Management commentary on all these was very positive despite the disappointing FY16 guidance,” said Piyush Nahar, analyst, Jefferies said in an investor note who maintains a buy call on the stock.
IDFC Institutional Securities noted that Sun’s all-stock buy-out of Ranbaxy positions the entity to pursue further merger and acquisitions deals, and evolve into a global specialty major.
However few analysts opined that the management needs to provide more clarity on the issues mentioned in the warning. Aditya Khemka, AVP, Ambit Capital said, “We appreciate the management’s indication on uncertainties ahead, though we find the release and discussion short of a clear roadmap…With Halol contributing about 20-25% of total sales, it remains to be seen for overall sales to decline in FY16e, which other businesses will have to severely underperform.”
BROKERAGES BULLISH BUT SEEK CLARITY
1.Jefferies maintains ‘buy’ rating enthused by management commentary on strong product pipeline in US, significant synergy benefits from Ranbaxy and upside from R&D pipeline.
2.IDFC reiterates ‘outperformer’ rating; says the all-stock buy-out of Ranbaxy positions the company to pursue further merger and acquisitions deals, and evolve into a global specialty major.
3.Ambit Capital says the guidance fell short of a clear roadmap; with Halol contributing about 20-25% of total sales, for overall sales to decline in FY16e, it remains to be seen which other businesses will have to severely underperform.