Sun Pharma Profit Halves, Director Moved as Scandal Bites

(Bloomberg) -- Sun Pharmaceutical Industries Ltd.’s fourth-quarter profit halved from a year ago as the fallout from a corporate governance scandal caused it to take a 10.85 billion-rupee charge ($155.7 million) and led to the brother-in-law of billionaire founder Dilip Shanghvi moving to a non-executive role.

Shares rose by as much as 2% in Wednesday morning trading as investors cheered signs that the company is cleaning house and moving past the scandal.

• Net income was 6.36 billion rupees for the quarter ended March 31, compared to 13.4 billion from a year ago, according to a filing. The average analyst estimate was for a 9.5 billion-rupee profit.
• Revenue for the quarter was 71.64 billion rupees, compared with an average analyst estimate of 75.4 billion rupees.

Key Insights

• Sun Pharma is making its most extensive damage control moves since media reports emerged earlier this year on whistle-blower complaints alleging various corporate governance lapses. The one-time charge that halved its quarterly profit stems from its attempt to unwind a relationship with a firm owned by Shanghvi, a connection that was reportedly called into question by whistle blowers.
• Although Sun has denied most of the allegations, it also announced that Sudhir Valia, a whole-time director and relative of Shanghvi that was a central figure in the whistle blower complaints, will become a non-executive director instead.
• The complaints had reportedly alleged that the Shanghvi-owned distribution business had made improper loans to firms controlled by Valia. The company denied those loans were made.
• Without the one-time charge, Sun Pharma said it would have seen sales of 81.29 billion rupees, a 21% increase over the same period last year.
• The company’s margins were hit by higher spending because of its push into patented medicines, particularly the roll out of the company’s flagship psoriasis drug in the U.S. These are expected to continue, Shanghvi said on an analyst call.

Market Reaction

• Shares rose by as much as 2% on Wednesday morning before erasing gains.
• Since the first media reports about the whistle-blower complaints late last year, Sun Pharma’s stock has dropped about 16%.

Get More

• Read the full company statement here
• Read about how Shanghvi is trying to re-position the company after losing $17 billion personally here
• Read about Sun’s interest in entering the Chinese drug market here

To contact the reporter on this story: Ari Altstedter in Mumbai at aaltstedter@bloomberg.net

To contact the editors responsible for this story: Rachel Chang at wchang98@bloomberg.net, Abhay Singh, Tuhin Kar

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