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Sun Pharma jumps 4% on robust Q3 results; brokerages maintain 'buy'

SI Reporter/New Delhi 13 Feb 19 | 09:48 AM

Shares of Sun Pharma jumped as much as 4.04 per cent to Rs 454.40 apiece in the early morning trade on BSE after the company reported a four-fold jump in its net profit for December quarter of financial year 2019 (FY19). 

The company posted net profit of Rs 1,241.85 crore against Rs 321.57 crore logged in the corresponding quarter of the previous fiscal. Consolidated revenue from operations of the company stood at Rs 7,740 crore, up 16 per cent as against Rs 6,653 crore for the same period year ago.

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Maintaining a 'buy' call on the stock, brokerage Motilal Oswal Financial Services said it remains positive on the company’s business model, which focuses on building a specialty portfolio in the regulated market and increasing traction in US generics, among others. However, resolution of corporate governance issues is a key monitorable.

Sun Pharma’s managing director (MD) Dilip Shanghvi confirmed that the firm received two queries from the Securities and Exchange Board of India (Sebi) on its foreign currency convertible bond (FCCB) issuance in 2004 and for its transactions with Aditya Medisales (AML). READ MORE

Speaking to investors in a Q3 earnings call, Shanghvi said the firm already responded to these two queries and does not have any update to share. Shanghvi also tried to clear the air about whether AML benefited in the past at the cost of Sun Pharma’s minority shareholders. 

The company's reported EBITDA margin improved by 597 basis points (bps) YoY (+574 bps QoQ) to 27.8 per cent, the highest in two years, partially aided by forex gains.  The only negative for the quarter was Sun deciding against launching its key CNS asset, Elepsia, citing unviability, noted analysts at JM Financial. 

"With Sun, having traded at the same multiple (13x) as at the peak of global recession while being mired in allegations of corporate governance lapses, now clearly emerging from the clouds, we believe that the stock has clearly troughed and is set to witness its first earnings upgrade in 2.5 years. We revise our FY19/FY20 earnings per share (EPS) estimates by +9 per cent/+4 per cent and arrive at a December 2019 target price of Rs 575. Maintain BUY," they said.

At 09:47 am, shares of the company were trading at Rs 448.75 apiece on BSE, up 2.75 per cent. In comparison, the benchmark S&P BSE Sensex was trading at 36,270 levels, up 116 points or 0.32 per cent. 

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