Angel Broking maintains ‘buy’ on Sun Pharma as US FDA lifts import ban; TP Rs 847

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Published: March 15, 2017 7:21:44 AM

Angel Broking reiterated its ‘buy’ rating on Sun Pharmaceutical shares with a price target of Rs 847 after the news that the United States Food and Drug Administration has lifted an import ban on its facility in Mohali in Punjab, which it inherited from Ranbaxy after taking over the company.

Lifting of import alert will clear the path for Sun Pharmaceutical to supply approved products from the Mohali facility to the US market, subject to normal US FDA regulatory requirements. (Image: Reuters)

Angel Broking reiterated its ‘buy’ rating on Sun Pharmaceutical shares with a price target of Rs 847 after the news that the United States Food and Drug Administration has lifted an import ban on its facility in Mohali in Punjab, which it inherited from Ranbaxy after taking over the company.

Sun Pharmaceutical shares yesterday rallied on the news and ended at Rs 708.25, up 3.61% from the previous close. Angel’s price target indicates about 20% for the stock from yesterday’s closing.

“This proposed action will clear the path for Sun Pharmaceutical to supply approved products from the Mohali facility to the US market, subject to normal US FDA regulatory requirements,” Angel Broking’s VP, Research, Sarabjit Kour Nangra said in a note. “This will pave way for better growth for the company in US and improvement in asset utilisations and hence return ratios in long run,” she added.

Back in 2013, the US FDA had banned supply of drugs from the erstwhile Ranbaxy Laboratories’ Mohali and three other facilities into the US as a penalty for violating good manufacturing practices. Ranbaxy, then under the control of Japanese drugmaker Daiichi Sankyo, signed a consent decree with the US FDA, promising to take corrective measures to meet the manufacturing standards.

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Sun Pharmaceutical, India’s most valuable pharmaceutical company, which acquired Ranbaxy from Daiichi Sankyo for $3.2 billion in 2014, inherited the tainted Mohali facility with it, hoping to bringing back into the shape and reaping the gains later.

Daiichi Sankyo had acquired a majority stake in Ranbaxy – then promoted by brothers Malvinder Singh and Shivinder Singh – for Rs 22,000 crore in 2008. However, soon after, the Indian company came under the scrutiny of the United States Food and Drug Administrator for non-compliance with the manufacturing standards for exporting drugs to the US.

The US FDA had taken action against the Mohali facility in 2013 when it ordered the facility to be fully subject to Ranbaxy’s Consent Decree of Permanent Injunction. Following this, Ranbaxy faced huge fines and sharp erosion in valuation.

While certain conditions of the consent decree will still continue to be applicable to the Mohali facility, lifting of import alert will be a huge boost for the Indian drugmaker, which earns 40% of its revenue from sales in the US.

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