Sun Pharma changes distributor, gains 5%

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Sun Pharma rebounded 5 per cent after dropping a six year low late last week but the bounce in the stock may not sustain as corporate governance concerns may continue to weigh on sentiment. The renewed strength in stock  was sparked by the company’s move to replace its domestic formulations distributor Aditya Medisales with its own subsidiary in a bid to alleviate corporate governance concerns. The stock ended at Rs 418 , emerging as the top gainer on the Sensex. The stock had fallen 13 per cent intraday. Shares of group company Sun Pharma Advanced Research Company rose as much as 7.6 per cent intraday before ending up 1.6 per cent at Rs 176.70. The drug maker announced a series of steps to allay investor concerns following two complaints by a whistleblower. Sun Pharma said it is transitioning the domestic formulation distribution company Aditya Medisales to Sun Pharma’s wholly owned subsidiary. This change will be effective from first quarter of FY20, after receiving all requisite regulatory approvals. Aditya Medisales has been at the centre of controversy after reports emerged that a whistleblower note to the Securities and Exchange Board of India had alleged that Aditya Medisales had lend money to Suraksha Realty. . The company also “unequivocally” denied that it had lent or stood guarantee for Suraksha Realty, a firm promoted by Sudhir Valia, Director of Sun Pharma. “It is too early to jump in and do bargain buying. One should wait for the dust to settle down,” said G Chokkalingam, Founder, Equinomics Research and Advisory. “Valuation is still not comfortable at 3.5 times EV to sales,” said Chokkalingam. Experts said that one should wait for the December quarter result and also watch out for any regulatory steps from SEBI regarding the corporate governance issues.

Brokerage Jefferies said in a note dated January 20 that it is positive on the cyclical business recovery of Sun Pharmaceutical Industries but corporate governance issues will remain an overhang till an investigation is complete. “While governance issues could continue to be an overhang till an investigation is complete, primafacie we see no concerns with the business,” said Jefferies. The stock is down 65 per cent from its record high level of Rs 1,200.70 hit in April 2015. Foreign investors are also losing confidence in the stock. FPIs held 14.88 per cent in the stock at the end of December, down from 16.8 per cent held at the end of the previous quarter, exchange data showed. In an interview to ETNow, Shriram Subramanian, founder, InGovern Research said that the company is not going to gain back the lost reputation overnight despite these measures. “…the whistleblower letters have made an impact and Sun should have acted decisively… they chose to ignore… That has not helped the company.”

Source : https://economictimes.indiatimes.com

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