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Sentimental relief
Event: Sun Pharma has resolved the cGMP issues pointed by the USFDA
regarding its controlled release substance product manufacturing facility at
Cranbury, New Jersey, US in August 2010. Sun has managed to get a clean
chit on the facility post the re-inspection of the plant by the USFDA officials in
June 2011. As anticipated, despite minor observations, the Sun Management
took almost a year to resolve the issue.
Background details: The USFDA had raised issues covering deficiencies in
process controls, failure to inform the regulatory body on product quality defects
and inadequate corrective measures. The warning letter was specifically related
to four products: gemfibrozil tablets, nimodipine capsule, promethazine HCI and
oxycodone HCI tablets.
Minimal Financial Impact: The sales of the products mentioned in the warning
letter contribute around 3-4% of Sun’s US sales and the Cranbury facility is not
a major contributor to Sun’s sales. Controlled substances (addressable market
of US$4-5bn) are an important growth driver for Sun’s base business in US in
FY2012E. We believe that with controlled substance products gaining
importance and the resolution coming at an opportune time, it would boost
Sun’s base business in the next 3-4 years
Outlook and Valuation
Though the resolution would not have any major financial implications, we view the
USFDA clearance for the Cranbury facility as positive, since it would reduce the
overhang on the stock. This event may potentially impact the re-inspection at Detroit
facility, Caraco, which has been reeling under the USFDA ban, in a positive
manner. As the opportunities from Para IV recede, the focus is likely to shift on its
base business. Further, the JV with Merck for the emerging markets is likely to
boost the long term prospects of the company. Apt utilization of cash could boost
the return ratios.
At the CMP of Rs474, Sun is currently trading at 22.3x its FY2012 and 19.4x
FY2013E EPS respectively. Citing the recent downfall in the stock, we believe this
would be a good entry point for the investors. We maintain our positive bias on the
stock and upgrade the stock to Accumulate from Hold with the price target of
Rs562.
Risks
Slowdown in domestic market
Delay in product approvals
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sentimental relief
Event: Sun Pharma has resolved the cGMP issues pointed by the USFDA
regarding its controlled release substance product manufacturing facility at
Cranbury, New Jersey, US in August 2010. Sun has managed to get a clean
chit on the facility post the re-inspection of the plant by the USFDA officials in
June 2011. As anticipated, despite minor observations, the Sun Management
took almost a year to resolve the issue.
Background details: The USFDA had raised issues covering deficiencies in
process controls, failure to inform the regulatory body on product quality defects
and inadequate corrective measures. The warning letter was specifically related
to four products: gemfibrozil tablets, nimodipine capsule, promethazine HCI and
oxycodone HCI tablets.
Minimal Financial Impact: The sales of the products mentioned in the warning
letter contribute around 3-4% of Sun’s US sales and the Cranbury facility is not
a major contributor to Sun’s sales. Controlled substances (addressable market
of US$4-5bn) are an important growth driver for Sun’s base business in US in
FY2012E. We believe that with controlled substance products gaining
importance and the resolution coming at an opportune time, it would boost
Sun’s base business in the next 3-4 years
Outlook and Valuation
Though the resolution would not have any major financial implications, we view the
USFDA clearance for the Cranbury facility as positive, since it would reduce the
overhang on the stock. This event may potentially impact the re-inspection at Detroit
facility, Caraco, which has been reeling under the USFDA ban, in a positive
manner. As the opportunities from Para IV recede, the focus is likely to shift on its
base business. Further, the JV with Merck for the emerging markets is likely to
boost the long term prospects of the company. Apt utilization of cash could boost
the return ratios.
At the CMP of Rs474, Sun is currently trading at 22.3x its FY2012 and 19.4x
FY2013E EPS respectively. Citing the recent downfall in the stock, we believe this
would be a good entry point for the investors. We maintain our positive bias on the
stock and upgrade the stock to Accumulate from Hold with the price target of
Rs562.
Risks
Slowdown in domestic market
Delay in product approvals
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