Sun Pharma share price crashes on Ranbaxy integration cost, sales alert

Shares of Sun Pharma plunged 15 per cent today, wiping out Rs 34,055.55 crore from its market valuation, after the drug major said it expects to take a hit on profit for the fiscal due to charges related to the ongoing integration with Ranbaxy Laboratories.

The stock tumbled 14.95 per cent -- its biggest single-day fall -- to settle at Rs 805.30 on the BSE. In intra-day trade, shares of Sun Pharma plunged 15.6 per cent to Rs 799.05.

At the NSE, shares of the company plummeted 15 per cent to Rs 805.25 at close.

The extreme weakness in the stock pulled down the company's market valuation by Rs 34,055.55 crore to Rs 1,93,784.45 crore.

The stock was the biggest loser on both Sensex and Nifty.

"After the FY16 sales and profit guidance, we expect the company's financials to be impacted," said Sarabjit Kour Nangra, VP Research - Pharma, Angel Broking.

As a part of the integration process with Ranbaxy, the company expects to incur certain integration charges in order to generate long-term synergies from this merger, Sun Pharma said in a statement yesterday.

Also as part of the integration processes, the company may decide to discontinue certain non-strategic businesses, it said.

As per the company's estimates, the consolidated revenues would remain flat or show a decline over FY15. Also the consolidated profits "may also be adversely impacted due to certain expenses/charges arising out of integration as well as remedial actions."

The company completed the USD 4 billion merger deal with Ranbaxy Laboratories in March this year.

Meanwhile, in the broader market the BSE Sensex ended at 28,182.14, down 237.98 points.

Pulls down Sensex too

IT exporter Infosys may have been the star of the day, but the benchmark BSE Sensex lost ground heavily, weighed down by some late-session selling pressure, which ended the day 238 points lower at 28,182.14.

"Investor focus was on the monsoon session of Parliament and heavyweight earnings as the market traded sideways and finally closed in the negative territory," said Alex Mathews, Head Research, Geojit BNP Paribas Financial Services.

Cautious investors steered clear of healthcare, realty, refinery, banking and FMCG counters.

Sun Pharma dealt the maximum blow, plunging as much as 15%, its biggest daily fall, after the company warned that its earnings numbers would be tepid at best.

But the silver lining was Infosys whose stock zoomed 11 per cent after the company reported a nearly 5 per cent yoy increase in consolidated net profit at Rs 3,030 crore for the June quarter. Its bullish revenue guidance lifted other IT stocks too.

The Sensex started the day on a weaker note at 28,391.82, but recovered immediately to 28,518.06 on the back of solid foreign capital inflows coupled with Infosys' positive show.

Intra-day, it fell to 28,138.30 before settling at 28,182.14, down 237.98 points, or 0.84 per cent, largely due to fag-end profit-booking by participants.

The 50-share Nifty dropped 74 points, or 0.86 per cent, to close at 8,529.45 after trading between 8,517.90 and 8,646.75.

Of the 30 Sensex stocks, 23 ended lower while only seven notched up gains. 

"The initial Q1 FY16 results are a mixed bag, providing no clear picture of the earnings outlook. The expectation regarding results is low," said Vinod Nair, Head-Fundamental Research, Geojit BNP Paribas Financial Services.

Besides Sun Pharma, others that ran up losses were Vedanta, Lupin, ONGC, Tata Steel and Cipla.

In spite of the cloudy sentiment, Bharti Airtel, Wipro Hero MotoCorp and Bajaj Auto registered gains.

In terms of BSE sectoral play, healthcare fell 5.93 per cent, along with realty, oil and gas and FMCG. However, IT ended in the positive territory.

The broader markets couldn't escape the selling pressure as the BSE small-cap and mid-cap indices fell up to 1.59 per cent.

Going ahead, investors are waiting for the outcome of the the monsoon session of Parliament, which is going to decide the fate of key legislative reforms such as GST and Land Bills.

According to provisional data, foreign portfolio investors (FPIs) net bought shares worth Rs 714.40 crore yesterday.

The market breadth turned negative as 1,883 stocks finished lower, 946 closed higher while 101 ruled steady. The total turnover rose to Rs 3,203.58 crore, from Rs 2,775.95 crore yesterday.

European stocks were trading mixed today while Asian markets signed off higher.

US stocks closed mildly higher yesterday with the Nasdaq hitting another record as earnings reports came in.

Jefferies maintains buy call on Sun despite adverse guidance

International brokerage house Jefferies said it is positive about Sun Pharma's strong key fundamentals, though its stock plunged 15 per cent today, a day after the company warned of a deeper cut in bottomline and topline this year due to ongoing integration with Ranbaxy.

Following the adverse guidance, the Sun Pharma counter fell by a massive 15.06 per cent at Rs 805.25 on the BSE, pulling down the main index Sensex by 0.84 per cent.

"We have been positive on Sun Pharma due to key factors like strong product pipeline in the US and emerging markets, significant synergy benefits from Ranbaxy and upside from R&D pipeline including MK-3222. The management commentary on all these is very positive despite the disappointing FY16 guidance," Jefferies said in its report.

Accordingly, the company has given a buy call on the stock with a price of Rs 1,100.

"Yesterday, Sun Pharma gave a guidance of flat or declining sales in FY16 over FY15 led by delay in Halol unit's resolution and discontinuation of low margin businesses. It also expects to incur further integration costs in FY16. The FY16 guidance is in our view conservative," Jefferies equity analyst Piyush Nahar said in the report.

Management indicated that the only business facing challenge is Halol unit which contributes 10 per cent of sales. "Even a 60 per cent decline in production implies that the discontinued business should be 9 per cent of sales which is very high in our view. We expect Sun to see 3-4 per cent topline growth in the year," Nahar said in the report.

The brokerage also expects a revival for Sun Pharma in FY17 because significant number of products from Halol unit are low competition which should allow the company to regain market share, the report said.

Sun has one of the strongest product portfolios and pipelines among Indian companies. Over the past few years the portfolio has provided significant short and medium term opportunities like Lipodox and Taro, the report said.

"We believe that there could be similar opportunities going forward also. The key option in the near term is MK3222.

In its commentary, the management was very positive on the drug and expected significant benefit going forward. It has formed a dedicated team for the product in US and we believe it is looking for a late FY17 launch," the report said.

The report also noted that the management was also very positive on Ranbaxy. It mentioned that unless they severely mismanage the integration the acquisition would be EPS accretive in FY18.

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