Why it just may be the right time to start buying Sun Pharma

ET Intelligence Group: Posting a strong second quarter performance aided by the exclusivity sales from generic Gleevec and non-recurring sales of $25 million, Sun Pharma reported 13% increase in net sales and an EBITDA margin of 40%.

Given that the annual revenue growth guidance has been maintained at 8-10%, the second half performance in the fiscal is likely to be subdued -especially post the Gleevec exclusivity sales, supply disruption and lack of new product approvals this year.

However, the company's performance on the bourses in the recent months has been more dismal than its ground performance. The Street has factored in most of the negatives or risks that have impacted or could impact the company's business. These include subdued performance expected for the fiscal, Halol plant under FDA import alert, possibility of punitive action by the US Department of Justice and threat of a Clinton Presidency . The Sun Pharma stock is down 44% from its record high of Rs 1,200 hit in April 2015. With most of the negatives having been factored in, there is limited room for the stock price to sustain a major drop.

In contrast, there are many triggers which could provide upside to the stock. A clearance from USFDA on reinspection of Halol facility, improvement in base business in the US, strengthening of its complex and limited competition specialty product pipeline. These should help the company perform strongly in spite of the challenges of pricing pressure and regulatory risks.

Albeit a cautionary tone of the management in the earnings call hints that a recovery in the company's performance may not be immediate, which is also likely to be the case with the stock price on the bourses.