Biggest Indian Drugmaker Ordered to Undergo a Forensic Audit
Sun Pharma headquarters in Mumbai. (Photographer: Kanishka Sonthalia/Bloomberg)

Biggest Indian Drugmaker Ordered to Undergo a Forensic Audit

(Bloomberg) -- Sun Pharmaceutical Industries Ltd. said it is undergoing a forensic audit of its financial statements as ordered by India’s markets regulator.

The Securities and Exchange Board of India has asked for a forensic audit of the company’s financial statements for three fiscal years to March 2018, India’s biggest drugmaker told exchanges in a late evening filing Thursday, without specifying the reason. The shares closed 1.6% lower to 425.10 rupees in Mumbai pushing the decline in the past year to 37%.

The probe points to mounting challenges for the billionaire Dilip Shanghvi-controlled drugmaker after whistle-blower complaints on corporate governance lapses triggered a stock slide last year and forced the firm to tweak some of its business contracts to contain the crisis.

“Sentimentally things will remain negative at the present juncture,” said Surya Patra, vice president at Phillipcapital India Pvt. in Mumbai. “What is not known is the outcome of the investigation, and if there will be some action taken by Sebi. The basis of the forensic audit is also not known.”

The latest regulatory action was disclosed after a query by exchanges asking the company to confirm local news reports that Sun had been asked to conduct the forensic audit following the complaints.

Major Escalation

The audit “presumably linked to the whistle-blower complaint” will imply a potential overhang on the stock, local brokerage Kotak Securities Ltd. said in a note Friday. “A forensic audit is a major escalation in the investigation in our view.”

Sun Pharma had swung into action early this year to quell the crisis of confidence, triggered by the whistle-blower complaints alleging that its founder Shanghvi was wringing extra financial benefits from the company’s operations through related party transactions.

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Shanghvi had denied wrongdoing in a December conference call.

The company is “committed to adhering to all applicable legal and statutory requirements,” it said in the filing on Thursday.

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