Aurobindo Pharma shares drop 18% as USFDA revokes VAI status for Unit IV; brokerages revise target price

By: |
February 24, 2020 10:30 AM

Aurobindo Pharma in a BSE filing said it has received a communication that US FDA inspection at Unit IV is still open and under review.

 

Aurobindo pharma, Aurobindo pharma ltd, Aurobindo pharma share, Aurobindo pharma news, Aurobindo pharma limitedIn November, Aurobindo Pharma had said that none of the observations were related to data integrity.

Aurobindo Pharma share price fell as much as 18 per cent to Rs 491.90 apiece on BSE in today’s trade after the USFDA revoked the voluntary action initiated (VAI) status for the company’s plant on February 21. The company in a BSE filing said it has received a communication that US FDA inspection at Unit IV is still open and under review by way of rescindment of 90-day VAI letter that was issued by them on February 18, 2020. Inspection at Unit IV was conducted by the US FDA from November 4-13, 2019. Around 10.30 AM, Aurobindo Pharma shares were trading 15 per cemt lower at Rs 509.80 a piece on BSE.

“The development is unprecedented, given that the rescindment was virtually within three days of the VAI grant, and we go back to our base assumption of an OAI (Official Action Indicated ) status for Unit-IV. We expect the stock to react sharply, particularly, given the 20% stock price rally on the back of the VAI announcement,” Kotak Institutional Equities said in the latest research report. Taking into account the potential risks of an OAI, the brokerage company has revised its target prices to Rs 540, a downside of 10 per cent. Earlier the target price set by the brokerage firm was Rs 620 a share.

However, another brokerage and research firm Emkay Global Financial Services is not sure of the exact reasons for the rescindment. “At this point, it is unclear by when Unit IV will be reclassified, as the mandatory 90-day period already seems to be over. Until clarity emerges, we expect the stock to remain under pressure. Maintain Hold. Aurobindo is a UW in our sector EAP.

In November, when the company received the observations, it had said that none of the observations were related to data integrity. Unit IV significantly contributes to the revenue and operating profit of the firm. Aurobindo Pharma has posted a net profit of Rs 705.3 crore in the third quarter of the FY20 as against Rs 712.2 crore in the corresponding period of the previous year.

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