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Sun Pharma share price jumps after Q4 results; should you buy or sell stock?

FE Online
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Shares of India’s major drug-maker Sun Pharma surged in trade on Wednesday, after the firm reported Q4 results. Sun Pharma shares gained more than 2.8% to hit the day’s high at Rs 424.55. In the latest quarter, Sun Pharma has reported a 53% drop in profit to Rs 635.90 crore, after the firm took a Rs 1,085 crore one-time charge on account of restructuring of distribution business (transferred to subsidiary from Aditya Medisales). Sun Pharma had reported a net profit of Rs 1,342 crore in the comparable quarter last year, India s largest drug maker said in a stock exchange filing on Tuesday.

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Taking stock of the reported results, global brokerage firm Nomura said that it has a buy rating on the stock with a target price of Rs 536. “The adjusted Q4 sales were 2.5% below our estimate and FY20 guidance was below our current estimates,” noted the firm. Further, EBITDA in Q4 was supported by one-time generic sales opportunity and US revenues positively impacted by one-time generic revenue opportunity, said the report.

Sharing its take on Sun Pharma’s performance in the quarter, Reliance Securities said that it was a decent show as there was an improvement in the US business; and distribution transition in domestic business is on track. “Recently, Sun Pharma has addressed some corporate governance issues raised by the investors, which in our view is a very positive move. We view SEBI-related issues as event-specific risks for the stock in the near-term,” Reliance Securities said. The research firm noted that the current valuation (PE multiple of 16.6x FY21E earnings) offers favourable risk-reward, and accordingly maintained a buy recommendation on the stock with a revised target price of Rs 500 (from Rs535 earlier).

According to Jefferies, the fourth quarter was a weak one led by investment in Ilumya and FY20 guidance is mixed. FY20 topline target is in-line but guidance for R&D & promotional spend is higher, said the firm. “With valuations at 20% discount to 16x FY21 PE, we have a buy call on the stock but have slashed price target to Rs 520 from Rs 540 as EPS estimated for FY20/21 has been cut by 10/3 percent,” said the firm.