``This rally does not amount to any new information being discounted, rather the expected growth rates which were once ignored by the markets is now being recognised,'' says Inquire Research equity analyst Jesal Shah. The sentiment for Indian pharma companies has been strengthened following the below par performance from most multinational pharma companies recently.

In Sun Pharma's case, the stock market's consensus estimates reveal a very hefty growth rate for the current year. This, in part, explains the hefty jump in the share price and the sharply higher price earning multiple that the market has appended to it of late. Estimates by analysts point to the company earning a net profit of Rs 90 crore in the current year which is a 50 per cent growth over the Rs 62 crore profit earned in 1998-99.

In the first half, it has already earned Rs 43 crore. Given this earnings forecast, the six-month forward price earning multiple works out to 23 times, which, analysts say, is a good enough discounting for Sun Pharma. So, no additional re-rating is expected and could occur only if the company manages to beat the markets earnings estimates.

Over the last one year, the company has seen a dramatic change in its valuations, returning almost 400 per cent to shareholders from a low of Rs 300 last year. The prime reason is the fundamental shift in its earnings capabilities. The company had decided to acquire critical mass in this business by going on an acquisition spree buying up both companies as well as brands. It began this activity in 1996 with the acquisition of one plant from Knoll Pharmaceuticals.

This was followed by the acquisition of a US based pharma company. Then came the acquisition of MJ Pharma (a manufacturer of bulk drugs and injectibles) and Gujarat Lyka Organics. As a result of these acquisitions, the company now caters to numerous segments such as psychiatry, neurology, cardiology, gynaecology, orthopedics and diabetology.

Analysts say that the company has begun to see the beneficial impact of the purchase of some brands from Natco Pharma; which include cold preparations, anti-infectives and an antibiotic brand. Around the time it made the acquisition of the Natco brands, it also acquired Milmet Laboratories; a small company in the eye care business; manufacturing formulations used in eye surgery as well as for treating eye infections.

The impact of these two acquisitions were seen in the last quarter of FY 1998-99 and the full impact will be seen this year. The merger of TDPL with Sun will bring about tremendous cost savings in the manufacture of drugs; thus improving margins. This merger will also give it capabilities to manufacture certain formulations such as hypersensitives, anti-epileptics and anaesthetics. TDPLs range also include anti-cancer bulk drugs.