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Sun Pharma shares plunge 13% on bleak FY18 outlook

LiveMint logoLiveMint 29-05-2017 Isha Trivedi

Mumbai: Shares of Sun Pharmaceutical Industries Ltd, India’s largest drug maker, fell 12.8% on Monday after its management guided a single-digit decline in revenue in financial year 2017-18 due to challenging business environment in the US, its biggest market.

The stock hit a low of Rs495.55, a level last seen in August 2013. So far in 2017, the stock has declined 16%. At 11.05am, Sun Pharma was trading at Rs503.05 on the BSE, down 11.52% from the previous close, while benchmark Sensex index was up 0.08% at 31,054.40 points.

Also read: Sun Pharma tells investors headwinds are getting stronger

The sharp fall in Sun Pharma’s shares dragged the BSE Healthcare index down by 3% to hit a low of 13,150.46.

Increased competitive intensity and customer consolidation is leading to pressure on pricing of drugs in the US, Sun Pharma’s managing director Dilip Shanghvi said in a post-earnings conference call with analysts on Friday.

He added that delay in product approvals in the US because of pending compliance issues at manufacturing plant at Halol in Gujarat may continue to affect US revenue.

Sun Pharma’s Halol unit was issued a warning letter by the US Food and Drug Administration (FDA) in December 2015 due to violation of good manufacturing practices. Consequently, the pace of product approvals in the US has slowed.

The company’s March quarter earnings were also disappointing. Its consolidated net profit fell 13.6% on-year to Rs1,223.71 crore, while net sales were down 8% at Rs6,825.16 crore. Sales in the US were $381 million, down 34% from a high base last year.

According to a Bloomberg poll of 24 brokerages, the company’s consolidated net profit was seen at Rs1,506.30 crore and net sales at Rs7,800.50 crore.

“We envisage FY18 to be challenging as the company has guided for flat-to-single digit revenue decline, which implies no new approvals from Halol and further investments in the specialty business. But, this is where our disappointments will be capped... Sun Pharma’s strategy of building specialty business at the cost of bearing near-term pain is the only way to build a sustainable base business over time,” Edelweiss Securities said in a report.

The brokerage has cut FY18 and FY19 earnings estimate to reflect near-term pressures but it believes that the specialty business will lend far more sustainability to Sun Pharma’s profit compared to peers and has maintained ‘Buy’ rating on the stock.

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