Markets have hit their peaks, with investors finding very little value in spaces like banking, infrastructure and consumer goods. The IT sector stocks, which had lately been laggards have also rallied a fair bit. It is difficult to find pockets of value and investors would now have to look at shares that are a good contrarian bet. Here is a good largecap stock that an investor can buy for the long-term from the Sensex.
Sun Pharma is India's largest pharma company and the world's fourth largest speciality generic pharma company by turnover. Shares in Sun Pharma recently slumped following a sharp decline in net profits by almost 59 per cent.
By now investors are already aware of the problems facing top Indian pharma companies, including pricing pressures in the US, competition and a firming rupee.
Dilip Shanghvi, Managing Director attributed the recent decline in profits to a challenging US generic pricing environment coupled with continued investments in building our global specialty business has impacted our Q2 performance. "We expect it to gradually improve in the second half of this year," he said.
Speciality business the key for Sun Pharma
Enhancing the contribution of the speciality business is the focus area for Sun Pharma going ahead. The company also plans to differentiate itself by introducing a complex set of products in the coming days.
Now let us take a look at the various initiatives that the company is taking in the speciality business. The company In-licensed Tildrakizumab (a monoclonal antibody targeting IL-23) from MSD for treating chronic plaque psoriasis- Filed with US FDA and EMA for European market. It also acquired Oncular Technologies, which now gives the company access to global rights for Seciera - for treating Dry Eye Disease.
The company has also acquired BromSite, the first specialty ophthalmology product in US. Sun Pharma has also entered into a joint venture with Intrexon Corporation for developing gene-based therapies for ocular diseases.
A number of other initiatives
Sun Pharma also acquired branded oncology product - Odomzo last year, which is a product that is approved in 30 countries globally including US, Europe and Australia. Clearly, there are several other initiatives that could enable growth at Sun Pharma.
Also, if it can manage to reduce its overall reliance only on the US markets and improve its geographical reach there could be further gains for the company.
Interestingly, the company has 151 ANDAs & 5 NDAs pending with US FDA for approval. Once these are approved, we would be able to see greater contribution.
Halol re inspection the key
The Halol re-inspection by the US FDA would be paramount in the coming quarters. All remediation work at the facility of the company is over and re-inspection on site is expected in near term.
If the warning letter is withdrawn the company could have a very good performance in the next few years.
Valuations of Sun Pharma
The shares of Sun Pharma have dropped almost 40 per cent in the last one year. There is a possibility that the company can report an EPS of Rs 32 by 2020.
If you apply a p/e of 25 times for a larger and renowned company like Sun, the shares should trade closer to the 800 levels. A good stock to buy on declines for the longer term. Sun Pharma is thus a good contrarian stock to buy on declines.
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