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The profit warning from Sun Pharmaceutical Industries has divided the analyst fraternity down the middle. The company, on Monday, indicated that sales for the current fiscal would at best be flat due to ongoing remediation work at its Halol (Gujarat) plant. Following this, the stock crashed 15 per cent on Tuesday, its steepest daily decline.
Diverse calls While some analysts see this as a short-term pain and have reiterated buy on dips, others have already downgraded the stock. However, some have sought clarification from the management, maintaining status quo for now.
According to a report by Jefferies, Sun’s 2015-16 guidance is conservative. “The management indicated that the only business facing challenge is Halol, which contributes about 10 per cent of its sales. Even a 60 per cent decline in production implies that the discontinued business should be about 9 per cent of sales. We expect Sun to see 3-4 per cent top-line growth in the year,” the report said.
Kotak Securities, which has recommended a ‘sell’ on the stock with a target price of ₹790 said, “The ongoing remediation process at Sun’s flagship Halol facility compounds growth pressures in the US. The Gleevec settlement and Ranbaxy acquisition synergies can partially take care of SUNP’s growth issue. But given the dilution to Sun Pharma shareholders from Ranbaxy acquisition, value creation is likely to be modest, with our estimates suggesting significant dilution to Sun’s earnings in FY16.”
Not so clear a roadmap Aditya Khemka of Ambit Securities said the release and discussion from the management is short of a clear roadmap. “Whilst we maintain our no stance due to tax planning aspects amid less than ideal disclosures, we move our estimates under review in order to gain further clarification from the management,” he said in a note.
However, for analysts Vivek Kumar and Aarti Rao at SBI Securities, it is only a near-term negative. “While Sun continues to strengthen its future pipeline into specialty products and complex technologies, we believe a tepid FY16 guidance could be a near-term negative. Delayed synergy benefits and regulatory challenges in Ranbaxy are the key risks to the stock,” they felt.
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