14 March 2017
Mohali plant out of woods; Halol resolution is key
Sun Pharma (SUNP) announced that the US FDA has decided to lift the import alert
status on its Mohali-based formulations plant. The plant was inspected by the US
FDA from 7-16 November 2016, post which seven observations were issued (none
were repeat observations).
This new plant was put under import alert and consent decree in 2013 after the US
FDA inspection in September 2012 (11 observations) and December 2012 (3
observations). Although resolution of the US FDA issues at Mohali will be a sentiment
positive and should help create excess capacity, we do not expect any meaningful
change to our near-term estimates. The Halol resolution remains the key near-term
catalyst, in our view.
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
876 / 572
Financials Snapshot (INR b)
2017E 2018E 2019E
309.3 334.0 373.5
97.6 111.7 130.8
143.1 171.2 206.4
Shareholding pattern (%)
Dec-16 Sep-16 Dec-15
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Resolution of FDA issues at Mohali to de-risk future fillings from India:
were ~30 pending ANDAs from this facility. Atorvastatin remains one of the key
fillings from this plant. Given that the pending ANDAs are at least 3-4 years old,
we do not expect any meaningful contribution to sales. Having said that, the
resolution of the US FDA issue is key for SUNP. Currently, the company has four
oral solids facilities in India supplying to the US market (apart from Halol, other
three facilities are running closer to full capacity). With Mohali becoming
CGMP-compliant, we believe SUNP will be able to expand capacity and de-risk
Halol resolution is key:
For SUNP, Halol is one of the largest facilities
contributing to US sales. In FY16, Halol contributed ~7-9% of total sales and
>15% of US sales for SUNP. Apart from key oral solid fillings (including SPARC
products), almost all the injectable fillings are from this facility.
Major initiatives over last two years to bring Halol back on track:
past two years, SUNP has taken multiple measures, including 1) hiring of third-
party foreign consultants; 2) hiring of senior employees from big pharma
companies in the quality and compliance team (Hired Jila Breeze in early 2015
as head of global quality and compliance. She has more than 25 years of
experience with companies like Novartis and Apotex); and 3) heavy investment
in technology and remediation (one of the primary reasons for significant
increase in legal cost over last two years).
Still the best play in specialty pharma space:
SUNP has been able to build a
rich specialty business portfolio. Its key products include Siciera and
Tildrakizumab (positive phase 3 data out). It has also acquired InSite, partnered
with Moebius Medical, and bought rights to market SPARC products.
Investment in specialty franchise to create value in long term:
We believe the
current stock price does not reflect key positives like RBXY integration benefits,
Halol/Mohali plant resolution and investments in specialty business. We see
the current weakness in the stock price as an opportunity to buy the stock.
SUNP remains an attractive Indian play on specialty business in the US. We
rating with a target price of INR850, based on 22x 1HFY19E.
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
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