Sun Pharma’s update may not be enough to allay investor concerns

Investors’ concerns surrounding corporate governance prompted the usuallyreticent management of Sun Pharma to provide an investor update addressing item-wise the concerns raised by the Macquarie report. According to company’s managing director Dilip Shanghvi on the investor call, some of those concerns are related to things that are old, some unrelated to Sun Pharma and some are incorrect. The company is in observance of governance standards befitting its size and scale and is not aware of any whistleblower case filed with Sebi - besides the information published in the media. The management’s priority is to re-establish the credibility of Sun Pharma among its investors.

In its bid to be tax as well as cost efficient, Sun Pharma entered into transactions years ago that were legal then, even though they may raise governance concerns now. The company’s journey from being a small generic pharma company two decades ago to being the largest one in India has involved transactions with non-descript entities and business calls that may not fit well in the current scheme of things. The company is open to re-evaluate some of these transactions keeping in mind the best interests of the investors.

However, for investors, the governance issues — even if related to old transactions — are a matter of concern given the kind of wealth erosion that the stock has witnessed.


The stock is now one-third of its record high value reached three years ago. The investors would be nervous to see negative ramifications of any reevaluation undertaken by the company to improve the company’s governance. The worst fears would be if any old ghosts come back to haunt and impact the company’s alreadydiminished fortune.

Besides the FDA compliance issue, possibility of any regulatory governance issue cropping up has become yet another sword hanging for Sun Pharma’s investors.