Sun Pharma ends over 8% down as Daiichi exits; a good buy?

MUMBAI: Sun Pharmaceuticals ended the day 8.86 per cent down at Rs 951.60. It had plunged 11% in intraday trade after Daiichi Sankyo exited the company by placing its entire 8.9 per cent stake on the block.

The sale of approximately 215 million shares was carried through multiple block deals. The high liquidity may lead to sideways movement in the counter in the near term.

Analysts see this sharp correction as a temporary blip and expect the stock to bounce back. The deal is a win-win for Sun shareholders and Daiichi. Over 26 crore shares were traded on the two main bourses BSE and NSE the market may keep the stock subdued.

"The stock has an upside of 10 per cent from current levels and investors can start buying it on dips," said Sarabjit Kour Nangra, VP Research - Pharma, Angel Broking.

The block deal has been structured to give exit for Daiichi Sankyo.

Last year, Sun Pharma had agreed to buy Ranbaxy Laboratories for $3.2 billion from Daiichi Sankyo. As part of the deal, Daiichi Sankyo held 8.9 per cent stake in the company.

The sale brings curtains on a harrowing chapter for the Japanese drugmaker which began when it purchased Ranbaxy in 2008. It suffered a series of jolts when the USFDA pulled up Ranbaxy for technical deficiencies and accused the firm of faking test results to obtain clearances for its products. Daiichi was forced to pay $500 million in settlement.

After stake sale, the existing business partnership with Sun Pharma will remain unchanged, Daiichi Sankyo said.

"Given the quantum of the stock that came to the street, discount was always going to be there. The stock is still away from its fair market value so we should see the stock moving up back to the range where it was trading in the next couple of days," said Abhishek Sharma, pharma analyst, IIFL.

"We expect the stock to move up, unless there are negative surprises in quarterly results," he added.

According to an ET Now report, promoter Dilip Shangvi was likely to buy major part of the 9 per cent stake sold by Daiichi. The report had said that if Sun Pharma promoters buy the majority stake on offer, it would boost investor confidence in the stock, else, it would lead to weakness in the counter.

"If Dilip Shangvi doesn't buy a large stake, it will hurt sentiment negatively," Sharma added.

Deatils of the deal are still not clear, though the counter come under heavy selling pressure.

Technical view:

Samit Chavan, technical analyst, Angel Broking

Technically, I would avoid it for the time being. It has broken its important support levels of Rs 1000 and Rs 970. There is a possibility the stock may now test Rs 9,00-870. Unless the stock gives reversal from these support levels, we would stay away from it.

From long-term perspective, the trend remains positive but in the near term, it is expected to stay sideways.

Once the stock pulls back from Rs 870-900 levels, it will be a good buying opportunity. On the upside, it faces resistance at Rs 1,000.