Will hike in promoters' stake make Sun Pharma healthy?

Our Bureau Chennai | Updated on October 23, 2019

Dilip Shanghvi, Managing Director, Sun Pharma (file photo).

Quantum of pledged shares also reduced; but analysts still have a mixed view

The promoters of Sun Pharmaceuticals increased their stake in the company marginally during the July-September quarter to 54.55 per cent from 54.38 per cent at the end of June. They bought 39 lakh shares worth about ₹400 crore from the open market during the quarter.

The promoters have also reduced the number of shares pledged with financial institutions. In a shareholding pattern disclosure to the exchanges, the pharma major revealed that the pledged quantity has dipped to 13.62 lakh shares (10.41 per cent of their holding) from 14.31 per cent (10.97 per cent).

The stock was hovering between ₹450 and ₹366 during the quarter but closed flat at around ₹390.

However, foreign portfolio investors (FPI) have reduced their holding in Sun Pharma to 14.7 per cent from 14.93 per cent, whereas insurance companies 7.93 per cent (6.79 per cent) and small retail investors 6.32 per cent (6.30 per cent) have increased their holding. Among the insurance companies, LIC’s holding has remained static at 5.88 per cent.

Stock turns bitter

The stock has been one of the big losers at the market as issues such as US FDA observations and whistleblower accusations of insider trading by Sun Pharma promoter Dilip Shanghvi and his brother-in-law Sudhir Valia kept it constantly under bear control.

Read also: Sun Pharma ordered to undergo a forensic audit by SEBI

Though the Sun Pharma stock has given a return of 207 per cent over 10 years, it crashed 50 per cent in the last five-year period and 33.15 per cent in the last year alone.

With the promoters buying the stock, is it time to take a relook at the stock? Well, analysts have a mixed view.

Buy, neutral and reduce?

According to Reliance Securities, though Sun Pharma has already addressed some corporate governance issues raised by the investors, SEBI-related issues continue to remain an event-specific risk for the stock in the near term. "However, at CMP, stock trades at 19.2x and 15.8x of FY20 and FY21 earnings, respectively (12-month forward 3-year average. Bloomberg PE at nearly 27x; below 1-SD three-year average), which is attractive to take fresh position, in our view," it added with a buy recommendation and price target of ₹500.

However, Credit Suisse, remains neutral, with a target price of ₹450. It is cautious on the company due to a forensic audit being carried out on its financials from FY16-18 and litigation on Ranbaxy products.

In a preview report on the July-September quarter, Prabhudas Lilladher said it expects tepid US sales growth and moderate India formulations to keep sales growth (Q-o-Q) and EBITDA flat. The domestic broking firm has maintained its 'reduced’ rating on the stock with a price target of ₹396.

Emkay Global, in a preview report, said Sun Pharma benefited from lower R&D spends in Q1 and seasonality in direct-to-consumer advertising costs, which will scale up in Q2

and thus, lead to a decline in margins. Further, the US business should see a sharp fall q-o-q as the one-time generic supply order in the US has receded.

Published on October 23, 2019

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