Sun Pharmaceuticals’ 12.7 per cent drop in share-price on Friday has raised a fresh bout of questions on activities surrounding India’s largest drugmaker.

The tanking share price, market-watchers said was linked to revelations last week of a second whistle blower report that was submitted to market regulator Securities and Exchange Board of India (SEBI). However, the article that revealed these details had come out early last week, while the company’s shares tanked two days later.

The stock market is a dynamic creature reacting to rumours and news developments instantly, said seasoned market-watchers, raising red-flags on the delayed reaction in this case and what might have indeed triggered it.

SEBI had in December acknowledged that they had received a whistle blower report against Sun Pharma and were examining it. Responding to whether the company has received a show cause from SEBI, Sun Pharma’s spokesperson said, “We have received two queries from SEBI which the company has responded to. We are not in a position to comment as to whether the queries are related to the whistle blower complaint.”

“The markets-regulator needs to act to clear the confusion around Sun Pharma,” said Arun Kejriwal, Founder, Kejriwal Research and Investment Services (KRIS). While analysts wonder why a show cause notice has not been issued to the company on the allegations, Kejriwal said that the regulator must investigate the volume of trade on Friday. “Looking at the company’s performance over the years, there seems to be no concern on its fundamentals for the present. But it also depends on how deep the corporate governance issues are,” he added.

Sun has been under a cloud since news on the first whistle blower report came out last November. The development was followed by Sun Pharma’s management explaining their actions in the light of allegations made by the whistle blower.

The allegations

In its complaint, the whistle blower has reportedly raised corporate governance and insider trading issues involving the company.

In an analyst-call in December, Sun Pharma promoter and Managing Director Dilip Shanghvi had said that they did not receive any information from the market regulator about the whistle-blower report or about the possible reopening of a probe on insider trading charges.

The company has seen insider-trading allegations levelled against it when it had acquired troubled drugmaker Ranbaxy in 2014 for $4 billion. Its top-management had then denied the allegations.

This time around, the whistle blower has reportedly red-flagged other discrepancies including routing its domestic formulations business through a related entity Aditya Medisales Ltd (AML). Responding to these allegations, Shanghvi said that the management was willing to assess its corporate engagement with the entity if investors were not comfortable with its present structure. AML had become a related party only in FY18, he had said.

Market-watchers say that Shanghvi’s earlier call had not entirely put all questions to rest. In fact, many were left seeking more details on the increased loans and advances extended to non-related parties.

Other niggling concerns that often crops up around Sun Pharma involve the transactions by Sudhir Valia through entities he is engaged in. Valia is Shanghvi’s brother-in-law.

An analyst puts the spotlight on SEBI and how it chooses to act next, given the recent intense activity around Sun Pharma and its stock.

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