What went wrong for Sun Pharma: A tragedy in 4 parts

ET INTELLIGENCE GROUP: Sun Pharma, the largest pharma company in India with a market cap of Rs 1.2 lakh crore and annual revenues of over Rs 30,000 crore, is trading at one of the cheapest valuations on the Street.

ET takes a look at the four reasons why this is so.

Inordinate delay in the resolution of USFDA issues at its key plant at Halol
Compared to peers such as Lupin, Cipla and Aurobindo Pharma, Sun Pharma has taken inordinately long to resolve the USFDA compliance issues, reflecting the severity of the cases.

The inability of the company to rectify the regulatory issues timely at one of its key plants at Halol — which contributes around 8-10 per cent of its overall revenues — has been a big disappointment for the Street.

Delay in the resolution has had a cascading impact on the product approvals from the facility, especially at a time when the pace of drug approvals has otherwise picked up in the US.



Inorganic growth could not help company dodge the sectoral headwinds
Sun Pharma has had a successful track record of turning around distressed assets.

It bought Caraco, Taro and Ranbaxy, apart from companies such as Dusa, URL and Insite Vision to ramp up its specialty business.

However, this strategic inorganic expansion could not insulate the company’s product portfolio from the price erosion in Taro as well as non-Taro businesses in the US.

One of the Indian companies to face price collusion charges in the US
One of the overhangs on the Sun Pharma stock is the uncertainty surrounding the outcome of the Department of Justice enquiry on the drug price collusion case in the US.

Sun is one of the Indian companies facing enquiry and an adverse verdict may potentially hit its prospects.

While the company had maintained that the results of the enquiry may not have material impact on the company’s financials, the Street is nevertheless apprehensive, given the current political scenario in the US.

Promoter investment in noncore businesses like solar
Dilip Shanghvi’s investment in unrelated areas such as oil and gas and wind energy in his personal capacity had also put investors on the edge.

There had been concerns about the cash generated by the pharma business being deployed to fund the new capital-intensive ventures. In 2015, facing concerns from investors, Sun Pharma had to shelve its plans to invest in wind energy project in the US through its subsidiary Taro Pharma.