Sun Pharma extends fall despite clarification on corporate governance issue

The stock is down 3% at Rs 442 on Tuesday, extending its 7.5% fall on Monday on the BSE.

Shares of Sun Pharmaceutical Industries moved down by 3% to Rs 442 per share, falling 5% from their early morning high of Rs 465 apiece on BSE, even though the company made a clarification related to corporate governance and whistleblower issues. The stock had ended 7.5% lower at Rs 455 yesterday.

It was trading close to its 52-week low price of Rs 435 touched on May 22, 2018, in the intra-day trade. The trading volumes on the counter nearly doubled with a combined 31.59 million equity shares changed hands on the NSE and BSE so far.

Sun Pharmaceutical Industries on Monday said it was open to engaging new audit firms for subsidiaries and discontinuing domestic sales through a related party, in a bid to assuage investor concerns. The firm said it was open to making changes wherever matters were not in shareholders’ interest.

Sun Pharma’s Managing Director Dilip Shanghvi said the company had received no intimation from the Securities and Exchange Board of India (SEBI) on the matter and announced steps to soothe investor concerns in a conference call Monday evening. CLICK HERE TO READ FULL REPORT.

The management responded to issues to some extent, while whistleblower related issues remained unaddressed as the company has not yet received queries from SEBI.

The brokerage firm Motilal Oswal Securities expects the stock to remain under pressure, till concerns related to corporate governance are sorted out.

“Though the key drivers for growth in US and domestic formulation market remain in place, we reduce PE multiple to 20x (from 27x) to factor ongoing issues related to corporate governance and reduce the price target to Rs 560 on 12-month forward earnings. We maintain Buy on the stock,” the brokerage firm said in an event update.

“Sun Pharma’s valuation multiple has de-rated around 15% in the last six trading sessions amidst various allegations, including the arrangement with Aditya Medisales, a spike in non-current loans & advances, and recent whistleblower claims of insider trading linked to the Ranbaxy buyout. While we await further action from SEBI, we do not see any major adverse implications on SUNP’s business and hence on earnings,” analysts at BOBCAPS said in a note.

In the past three months, the stock tanked 33% from Rs 654 level, as compared to a 5% decline in the S&P BSE Sensex. It touched a 52-week high of Rs 679 on September 6, 2018, in intra-day trade.