Sun Pharma gains 5% as Sebi finds no merit in allegation of fraud

HDFC Securities has 'buy' rating on Sun Pharma with a 12-month target price of Rs 545 as the brokerage expects a recovery in the profitability (24 per cent margin) by FY21E.

Shares of Sun Pharmaceutical Industries rallied 5 per cent to Rs 432 apiece in the early morning trade on the BSE on Thursday on reports that the market regulator Securities and Exchange Board of India (Sebi) has found no merit in the allegations of fraud against the company.

At 10:16 am, Sun Pharma was trading 3 per cent higher at Rs 425, and was the top gainer among the S&P BSE Sensex pack. In comparison, the benchmark index was down 0.54 per cent or 200 points at 37,251. The counter witnessed huge trading volumes with a combined 7.2 million shares changing hands on the NSE and BSE, till the time of writing this report.

A Business Standard report, citing sources, said that the Sebi's preliminary enquiry found no merit in the allegation of violation of securities laws, levelled by a whistleblower, against the pharmaceutical major.  CLICK HERE TO READ FULL REPORT

HDFC Securities have ‘buy’ rating on Sun Pharma with a 12-month target price of Rs 545 as the brokerage expects a recovery in the profitability (24 per cent margin) by FY21E once Ilumya and Cequa achieve scale in the US, while the generics business’ growth receives support from quality approvals from Halol.

“Sun Pharma remains on track to achieve its double-digit revenue growth guidance for FY20E. However, margins may remain subdued as it spends 3-5 per cent of total revenues on its specialty business, whose revenues are catching up slowly. With higher R&D guidance and the expected launch of Cequa in 3QFY20, EBITDA margins are likely to contract over the following quarters, in our view,” the brokerage firm said in a results review note dated August 14, 2019.

“With a significant part of revenues expected to come in from the branded business in 3-4 years, we believe the stock will continue to command a premium,” it added.

Further, analysts at KRChoksey Shares and Securities expect Sun Pharma’s topline/bottom-line to grow by CAGR 12.3 per cent/19.9 per cent over the period FY19 to FY21 on back of specialty revenue and commercialisation of Cequa in Q3FY20 while EBITDA (earnings before interest, tax, depreciation and amortisation) margin is forecast to further expand in near term with traction seen in Ilumya.