Select pharma shares in focus, Nifty Pharma rebounds 16% from day's low

Shares of pharmaceutical companies were in focus with Nifty Pharma index rebounding 16 per cent from its early morning low on strong rally in Aurobindo and Sun Pharmaceuticals.

At 10:55 am, Nifty Pharma index, the top gainer among sectoral indices, was up 2.8 per cent, as compared to a 0.36 per cent rise in the Nifty 50 index. The pharma index hit an intra-day high of 7,265, thus bouncing back 16 per cent from intra-day low level of 6,243 on the National Stock Exchange (NSE).

Among individual stocks, Sun Pharma was up 10 per cent to Rs 390, recovering 20 per cent from day’s low. The stock of drug firm hit intra-day low of Rs 325, its lowest level since September 6, 2012 on the NSE.

Sun Pharma on Thursday after market hours announced that its board will consider the buyback of company's shares on Tuesday, March 17, 2020.

The primary objective of a share buyback programme is to arrest the fall in the value of a stock by reducing the supply of the stock, which essentially pushes up the share price through a better price to earnings (P/E) multiple.

In the past one year, Sun Pharma's stock price has plunged 25 per cent, as compared to a 13 per cent decline in the Sensex till Thursday. In the last three years, the stock has tanked 48 per cent against a 13 per cent rise in the benchmark index.

Aurobindo Pharma moved higher by 20 per cent to Rs 449, and witnessed 32 per cent rally in the intra-day deal. The stock slipped 9 per cent to Rs 340, hitting a multi-year low in the early morning trade.

The US Food and Drug Administration (USFDA) inspected Aurobindo Pharma’s Unit 12 from 10th to 21th Feb’20 and issued form 483 with six observations. The regulator has pointed out microbiological contamination, lack of training, inadequate analysis of out-of-specifications, and deficiency in handling of complaints, among others.

Analysts at Motilal Oswal Securities believe that these issues are resolvable on undertaking robust actions for 3-6 months.  There are no Abbreviated New Drug Application (ANDAs) pending for approval from this site. Further, most existing products at Unit 12 are also approved to be manufactured in Unit 16. Unit 12 accounts for 3-4 per cent of US sales as a single-source facility, in our view, the brokerage firm said in a stock update.

The brokerage firm remains positive on Aurobindo Pharma and expects 15 per cent earnings Compound annual growth rate (CAGR) over FY19-22, led by its robust ANDA pipeline and addition of the Sandoz business. However, increasing regulatory concerns (primarily after revocation of Unit 4 classification) prompt us to cut our P/E multiple to 8 times (prior: 9 times), it added.

Among other individual stocks, Biocon, Cipla, Lupin and Divi's Laboratories were up in the range of 1 per cent to 5 per cent on the NSE. These stocks have rebound between 18 per cent and 23 per cent from their respective intra-day lows.