Sun Pharma at new low

Sun Pharma, like Tech Mahindra, plunged to a 3.5 year low today morning at Rs.495.55, a sharp drop of 13% and it continues to remain firmly in the red.

The disappointment is on many fronts – the poor show for Q4FY17, brokerage houses cutting targets and the company management too indicating a single-digit sales growth in FY18.

The company’s Halol unit has been under the US FDA scanner for some time now and due to this, exports to USA have been affected and so is the launch on new products. Till the FDA approves this plant, no new approvals will be given to products from this unit. Pricing pressure is also leaving a telling impact on the margins as the pharma companies get more and more consolidated, it gives them a much higher bargaining power than sole units like Sun. The company expects some seven of its products with exclusivity to see price declines.

It is like a Catch 22 situation – it needs to spend on R&D to develop a new product but at the same time, falling topline would mean an additional expenditure will lead to more pressure on margins. The company is working on a drug which can be used to treat psoriasis but once again, cannot do much until FDA clearance comes in but if it does get the nod, then this could help change the story.

CLSA has downgraded Sun Pharma to “sell” and has cut the target price from Rs.860 to Rs.500 . Morgan Stanley has also slashed its target price by 32%.