Tuesday, December 22, 2015

Buy Sun Pharma Ind CMP: Rs.760.00 Target: Rs.875

Sun Pharmaceutical Industries’ Halol facility is already under quasi warning letter state as it received zero approvals over the last 15 months (since the US FDA inspection in September 2014), and corrective action plan started at this facility more than a year back. Though the company will have to augment its corrective measures to provide additional comfort to the US FDA, we believe remediation measures taken over last few months will help the company expedite the resolution process.

We have cut our FY17/18E EPS by 6 per cent and 3 per cent, respectively, as we build a delay of three to six months in resolution of Halol facility. Though earnings impact would be limited, we expect multiples to remain range-bound in the near term.

Sun Pharma has multiple catalysts ahead which (if played out well) could help limit the damage. Given that it is 15 months since the US FDA inspection at Halol, the probability of an import alert is low in our view.

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