Domestic and international financial services firms lowered Sun Pharmaceutical’s earnings forecast in the wake of US FDA warning letter to drug maker’s manufacturing facility in Halol, Gujarat.
US investment banking firm Morgan Stanley as well as British multinational banking and financial services company, HSBC, downgraded the stock and cut their respective target price, citing delay in new approvals and lower US-market sales that would impact fiscal 2017 and 2018 earnings.
Bank of America Merrill Lynch (BofAML), CLSA, Credit Suisse, Equirus Securities and Motilal Oswal Financial Services slashed their earnings estimates in the range of 5-15% for the next two fiscal years.
Shares of Sun Pharma ended down 4.55% or R36 at R754.45 per share. The stock declined nearly 7.5% intraday – the most since July 21 this year, Bloomberg data showed. More than 1.3 crore shares exchanged hands on the BSE and NSE, up 2.29 times the 30-day average daily volume, stock exchange data showed.
Sun, controlled by billionaire Dilip Shanghvi, got the FDA warning as a result of the inspection in September 2014 at its Halol facility in India’s Gujarat state, the drugmaker said in a statement Saturday.
The FDA has withheld future product approvals from this facility. Sun said it expects to seek a re-inspection by the FDA on completing its “remediation commitments”.
“While we wait for further details of the warning letter, the Halol warning skews risk-reward negatively and could extend the timeline for a recovery in the U.S. business,” Girish Bakhru, an analyst at HSBC Securities and Capital Markets (India) said in a report on Monday. Halol is Sun’s key facility for the U.S. market, Morgan Stanley said in its report.
Sun, which became the world’s fifth-biggest generic drugmaker with its purchase of Ranbaxy Laboratories, also faces the challenge of resolving US import bans on four of Ranbaxy’s Indian facilities while maintaining its profitability.
“We will continue to cooperate with the US FDA and undertake any additional steps necessary to ensure that the US agency is completely satisfied with our remediation of the Halol facility,” MD Shanghvi said in the statement.
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