Sun Pharma tanks 10% on dismal Q4; Ranbaxy merger seen hurting in short term

Shares of Sun Pharmaceutical Industries tanked nearly 10 percent in early Monday trade, weighed down by lower-than-expected fourth quarter earnings announced Friday as investors reduced their exposure fearing more downside amid sluggish broad market sentiment. However, the fall in Sun Pharma shares, which has the highest weightage in the BSE Healthcare index, resulted in the index under-performing other benchmark indices, dropping 2.4 percent or down 400 points at 16,500.04 from its previous close. [caption id=“attachment_2272320” align=“alignleft” width=“380”] Reuters[/caption] At 10.10 am, Sun Pharma was at Rs 874.55, down 9.4 percent from its previous close, but off its low of Rs 869.50. Over 6.5 lakh shares changed hands on the BSE against 2-week average daily volume of 3.42 lakh shares. The stock has been under pressure since early April, tumbling around 27 percent in nearly two months period. On Friday, Sun Pharma reported a consolidated net profit of Rs 888.05 crore for the fourth quarter ended 31 March 2015, down 44 percent from Rs 1,587.12 crore profit clocked in the same period a year ago. Net sales stood at Rs 6,144.90 crore compared with Rs 4,043.57 crore in the year-ago period. ICICI Securities in its post-earnings report stated that the dismal earnings were mainly on account of high costs of harmonisation of policies of the acquired business of Ranbaxy with policies of Sun Pharma. “We believe, in the near term the Ranbaxy integration and supply constraints from Halol will cap EBITDA margin improvement; however, generic Gleevec launch in Q4FY16 will be a key trigger,” the report said. The brokerage has downgraded Sun Pharma to ‘hold’ from ‘buy’ with a revised of Rs 921 a share from the earlier Rs 1,085. Analysts reckon the company could face immediate near-term challenges following its merger with Ranbaxy Lab, and the decision to not issue any guidance for the current financial year (FY16) raises uncertainty amongst the investors.