Analysts Bet On Sun Pharma’s Specialty Business; Retain Ratings But Trim Price Targets

Sun Pharmaceutical Industries Ltd. fell the most in two months after quarterly profit fell short of analysts’ estimates, prompting brokerages to cut price targets by as much as 17 percent.

IDFC Securities, which has an ‘Outperform’ rating on the stock, cut the price target the most, from Rs 867 per share to 720. International brokerages including Morgan Stanley and Jefferies cut their targets by around 10 percent each, citing potential delays in resolving the U.S. Food and Drug Administration (FDA) concerns surrounding the Halol plant and slower ramp up in sales.

However, most brokerages retained their ratings on the stock, citing the ongoing transition to speciality business and benefits from the integration of Ranbaxy Ltd., which the company had acquired in June 2014. Here’s what key brokerages had to say on Sun Pharma.

Macquarie

• Retains ‘Outperform’ rating.
• Leaves price target unchanged at Rs 850 per share.
• Factors in Halol resolution starting second half of the financial year 2017-18.
• Lowers FY17-19 expected earnings per share (EPS) by 3-10 percent on potential delay in Halol resolution, impact of note ban and higher tax rate.
• Sun remains preferred pick among the large cap drug makers. Says company is best positioned for specialty transition.

Citi

• Retains ‘Buy’ rating.
• Cuts price target to Rs 900 per share from Rs 970.
• Says management commentary on Halol FDA issues was on expected lines, reassuring on the U.S. Department of Justice (DoJ) enquiry, and upbeat on specialty initiatives.
• Cuts FY18 EPS estimate by 7 percent and FY19 estimate by 5 percent, to factor in higher base erosion in the U.S. and longer remediation process at Halol.
• Says “Sun remains a story with multiple moving parts” with Ranbaxy deal synergies coming through and good progress in building a specialty pipeline.
• Sees possible delay in fresh approvals from the Halol facility, rising competitive intensity in the dermatological space and the ongoing DoJ enquiry to remain overhangs in the medium term.

Kotak Securities

• Maintains ‘Buy’ rating.
• Leaves price target unchanged at Rs 915 per share.
• Retains FY17 revenue growth estimate of 14.6 percent despite unchanged management guidance of 8-9 percent citing conservative guidance in the past.
• Closely watch few interesting launches in the specialty space in the U.S.
• Says the key catalyst for Sun remains Halol plant clearance.

Motilal Oswal

• Maintain ‘Buy’ rating and retains price target at Rs 850 per share.
• Cuts FY18E/19E EPS by around 8 percent, citing slower ramp-up in sales and margin expansion.
• Resolution of Halol and Mohali plants key catalysts (expected in first half of FY18).

Shares of Sun Pharma traded 3.1 percent lower at Rs 629.10 as of 10:30 a.m.