Shares of Natco Pharma are down close to 2% and are trading at Rs. 1,495, on a day when the broader markets are up close to 1%. News reports suggest that the company has received an adverse observation report (Form 483) from US FDA dated 23rd May 2014, post a 5-day inspection conducted earlier this year, at its manufacturing unit located at Kothur in Mahabubnagar district of Telangana state.

In response to news report, company was quick to disclose to the stock exchanges that the said formulations facility manufacturing tablets, capsules and pellets was classified as acceptable by US FDA, via a letter dated 14^th July 2014. It goes further to clarify that the company has made proposed commitments and corrective actions based on the minor and routine observations of the May inspection. Since the company continues to manufacture and sell products in the US from this facility, the incident should not have any financial implications.

However, markets don’t seem to be convinced with the clarification and have given a thumps down! On the valuation front too, shares of Natco are trading at a PE multiple of close to 30 times, which is aggressive given its size and peer comparison.