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Credit Suisse Upgrades Sun Pharma To ‘Outperform’, Target Price Hiked

Credit Suisse raises Sun Pharma target price to Rs 595 from Rs 490. 



Exterior of Sun Pharmaceutical in Mumbai. (Photographer: Kuni Takahashi/Bloomberg)
Exterior of Sun Pharmaceutical in Mumbai. (Photographer: Kuni Takahashi/Bloomberg)

Sun Pharmaceutical Industries Ltd. was the biggest gainer on the BSE Sensex after financial services major Credit Suisse raised its rating and target price on the stock on Wednesday anticipating an improvement in profit and reduced risk of price erosion.

Shares of the drugmaker rose as much as 5.6 percent, its biggest intraday jump since May last year, after Credit Suisse revised its rating to ‘outperform’ from neutral. The brokerage also hiked its target price to Rs 595 from Rs 490 earlier, according to an emailed note. Sun Pharma shares closed 4 percent higher at Rs 502.9 a piece.

Credit Suisse Upgrades Sun Pharma To ‘Outperform’, Target Price Hiked

The company’s profit is expected to increase at a compounded annual growth rate of 20 percent between financial year 2019-22, according to Credit Suisse.

It has invested over $600 million in seven specialty assets which are expected to achieve a peak sales of more than $700 million, the brokerage said. The contribution of these specialty assets to the profit will rise to more than 15 percent by financial year 2022, it added.

Monetisation has already started with two drugs in the market, and the lead derma drug MK-3222 should be launched next year.
Credit Suisse Note

While the brokerage remained negative on the U.S. generic drug market, expecting high single-digit price erosion, it said Sun Pharmaceutical will see mid-single digit price erosion. Israel-based subsidiary Taro Pharmaceutical Industries Ltd., which accounts for one-third of Sun’s profits, faces a lower risk. “Taro's EBITDA has already halved (from FY16) and product concentration is also lower now,” the report said.

Key Risks:

  • A delay in the resolution of the Halol plant, where Sun has invited the U.S. FDA for re-inspection.
  • Escalation of the Form 483 given to its Dadra facility by the drug regulator
  • An investigation by the U.S. Department of Justice could culminate into a penalty.
  • Higher tax rates