What investors should do with Sun Pharma: buy, sell or hold?

IDFC Securities, on the other hand, downgraded the stock to Neutral from Outperform and slashed its target price to Rs 557 from Rs 619 earlier post Q2 results.

Most brokerage firms maintained their positive stance on Sun Pharma but reduced their respective 12-month target price 10-12% and cut EPS estimates after the pharma major reported a net loss of Rs 218 crore for the September quarter on the back of the one-time loss of Rs 1,214.38 crore.

The company had posted a net profit of Rs 912.12 crore during the corresponding quarter of last year. The revenue stood at Rs 6,937.63 crore for the quarter under review, up from Rs 6,650.34 crore reported during last year. This implies a rise of 4 percent year on year.

Reacting to the results, CLSA maintained its buy rating on Sun Pharma post Q2 results but slashed its target price to Rs 700 from Rs 800 earlier as even the adjusted profit missed estimates by 10 percent.

The planned inventory reduction in India resulted in revenue decline. The global investment bank retained their buy rating due to US specialty portfolio potential.

At an operating level, the earnings before interest, taxes, depreciation, and amortization (EBITDA) was posted at Rs 1,531.1 crore, a rise of 11 percent to previous year’s operating profit of Rs 1,375.5 crore.

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Sun Pharma reported a net loss which got affected by settlements with certain plaintiffs related to the Modafinil anti-trust litigation in the US. The total settlement amounted to Rs. 1,216.3 crore.

Moreover, the India business was affected by the planned one-time inventory reduction in the supply chain and the high base of Q2FY2018, suggest experts.

“Taking cues from the management’s commentary we have revised our earnings estimates downward by 10% each for FY2019E, FY2020E and FY2021E,” Sharekhan said in a note.

“We maintain our Buy recommendation on the stock with a lower price target (PT) of Rs 695, valuing the stock at 21x its FY2021E earnings,” it said.

Brokerage firm Motilal Oswal also marinated its buy rating on Sun Pharma with a target price of Rs 760; however, they slashed EPS estimates FY19/20 by 6%/3% to factor in lower domestic formulation business.

“We remain positive on SUNP, considering likely ramp-up of specialty products, increased approvals from Halol, and good potential in the domestic formulation,” it said.

IDFC Securities, on the other hand, downgraded the stock to Neutral from Outperform and slashed its target price to Rs 557 from Rs 619 earlier post Q2 results.

“Significant fluctuations in US sales and overall profitability underlines near-term challenges. We see limited upsides given the volatility in the base business,” it said.

Disclaimer:- The views and investment tips expressed by investment experts are their own. Ripples Advisory advises users to check with certified experts before taking any investment decisions.

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