Published on : Mar 11, 2015
CLSA maintains the buying rating on Sun Pharmaceuticals. The organization recently said that the pharma company no longer has premium valuations with its peers, despite it deserving one. The U.S. Food and Drugs Association had previously made observations at Sun Pharma’s Halol plant and found them sub-standard. Along with that, high margin sustainability, delay and valuations in the Ranbaxy turnaround are the prime factors for this.
A report by the CLSA says that tensions at Sun Pharma should be eased after the U.S. FDA reapproved the Halol facility, along with the 20 years worth of acquisition track records that can provide good confidence about a timely Ranbaxy turnaround.
In comparison to a 4 per cent in the BSE Sensex, Sun Pharma shares have rallied above 20 per cent till date in 2015.
The report also says that the U.S. FDA issues at Halol were deeper than they previously believed. Investors had grown concerned about the 23 observations made at Halol. The observations tally up to 25 per cent of the U.S. sales. There has been a recent approval in manufacturing a SPARC product which could further ease tensions.
The approval does not completely eliminate the FDA’s risk of escalating the matter. But it could lower the probability of an import warning or alert letter, said the report.
The high margins of Sun Pharma are driven by the feasible pricing of Taro along with a strong India business that runs with a tight cost structure and the robust mix of products in the U.S.