Published on 16/03/2017 3:10:00 PM | Source: Sharekhan

Buy Sun Pharmaceutical Industries Ltd For Target Rs.775.00 - Sharekhan

Posted in Broking Firm Views - Long Term Report | #Pharma Sector #Broking Firm Views Report #Sun Pharmaceuticals Industries Ltd #Sharekhan

Key points

* The event:

The US Food and Drug Administration (USFDA) has lifted the Import Alert imposed on Sun Pharmaceutical Industries’ Mohali (Punjab) manufacturing facility, besides removing the facility from the Official Action Initiated (OAI) status. The USFDA had taken action against the company’s Mohali facility in 2013 and certain conditions of the consent decree will continue to be applicable. This clears the path for Sun Pharma to supply approved products from Mohali to the US market, subject to normal USFDA regulatory requirements. This positive development demonstrates the Sun Pharma management’s commitment to resolve the USFDA regulatory compliance issues at its manufacturing facilities.


* The impact:

We believe this will not have an immediate impact on the company’s earnings in FY2018. However, we can expect some of the key products being transferred from Halol (for timely monetisation) and Ohm Labs (to mitigate pricing pressure in the US market) in the short term, which could add to its earnings from FY2019 onwards. Also, it means that the drugs filed earlier from the Mohali plant could be reviewed, and upon approval (by the USFDA) can be launched (if it makes commercial sense / economically viable), depending on the market conditions.


* Outlook continues to be stable for long term:

The Sun Pharma management is confident of achieving $300 million synergy benefit from the Ranbaxy integration, the results of which should be evident from FY2018 onwards. Also, the company’s Specialty segment is expected to perform well going forward, with the company recently launching its first product BromSite (used to treat dry eye disease). As a result, we continue to remain positive on the company’s long-term prospects. Remediation efforts at the company’s Halol plant have been completed and the management now awaits the USFDA’s response on the corrective measures taken post re-inspection of the plant, which will be a key short-term trigger to be monitored.


* Maintain Buy with unchanged price target of Rs775:

We maintain our ‘Buy’ recommendation and the price target (PT) of Rs775. We shall review our earnings estimates and PT post the management’s guidance, which should be given after the announcement of Q4FY2017 earnings. Resolution of USFDA issues at the Halol site will act as a key catalyst for the stock in the near term.


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