Financial Daily from THE HINDU group of publications
Sunday, Feb 13, 2005
Financial Daily from THE HINDU group of publications Sunday, Feb 13, 2005 |
|
|
|
|
|
Investment World
-
Stocks Markets - Recommendation Sun Pharma: Hold Nath Balakrishnan
Sun Pharma's R and D centre at Vadodara... A base for strengthening its presence in profitable therapeutics segment.
While being confident about Sun's prospects, our view is tempered by the more than 50 per cent appreciation in the stock price since the earlier recommendation about a year ago, and the pricing pressure that Sun's subsidiary, Caraco, is likely to encounter in the American market. Sun's strong presence in therapy areas such as neurology, diabetology and cardiology have ensured that its margins have been maintained at robust levels. For instance, in the latest quarter, operating margin at close to 41 per cent is about 300 basis points higher that in the year-ago period. It is worth noting that margins have strengthened in spite of a doubling of R&D expenditure to Rs 28 crore in the latest quarter. The upshot of having a strong presence in lifestyle therapies is that the domestic formulations segment has grown 30 per cent on a year-on-year basis. Sun has also raised $350 million (Rs 1,575 crore) through a foreign currency convertible bond (FCCB) issue, which it plans to to use for acquisitions, though the therapy area that Sun would be looking at is not yet known. An announcement on this score would be keenly watched; with current valuation in the American market on the high side, any acquisition in this geography may not materialise in the near term. An extended period of non-deployment of these funds could also result in a lowering of the per share earnings on a fully diluted basis. On the research front, even as Sun is stepping up its R&D efforts, its new chemical entity is in Phase I human trials in Europe and the company intends to file an IND (investigational new drug) for this molecule in the US in the first quarter of the next fiscal. Likewise, on the two NDDS (novel drug delivery systems) projects, they are likely to move into clinical study by the early part of the next fiscal. As such, any announcement that entails a possible outlicensing of these molecules could provide substantial impetus to the stock valuation. On the domestic front, the last quarter could see some contraction in sales with the impending transition to a value-added tax regime, effective April 1.
Something similar also took place a couple of years ago when the uncertainty over the implementation of VAT resulted in pharma companies reporting a drop in sales on account of trade scaling down offtake; Sun, however, was an exception, as it had booked additional sales because one of its facilities was set to lose its tax holiday status. Postponement of trade purchase this quarter would be temporary and straightened out in Q1FY-06.
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2005, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|