Sun Pharma Sees Biggest Jump In Five Months Even As Brokerages Cut Price Targets

Shares of Sun Pharmaceutical Industries Ltd. rose as much as 6.3 percent to Rs 708, even as some brokerages cut their price targets on the stock.

Last Friday, Sun Pharma had hit its 2.5-year low on Bloomberg's report that that U.S. prosecutors would file charges against generic drug makers for allegedly colluding to fix prices.

HSBC, CLSA and JPMorgan cut their price targets by 2-8 percent, even as they maintained their rating on the stock.

HSBC

• Upgrades stock to ‘Buy' from ‘Hold'.
• Cuts price target from to Rs 797 per share from Rs 815.

The Sun Pharma stock offers “compelling valuations” given the second quarter performance, HSBC said in a note to clients.

Sun Pharma is now trading at attractive valuations of 20 times 1-year forward price to earnings after under-performing the Sensex by 23 percent since the the U.S. Food and Drug Administration issued a warning letter to its Halol facility on December 18, 2015.

CLSA

• Maintains ‘Buy' rating
• Cuts price target to Rs 980 per share from Rs 1,050 earlier.

The improvement in profitability and FDA clearance for Halol plant could be key catalysts for the Sun Pharma stock, CLSA said in its research note.

Here are some more highlights of what CLSA had to say:

• Financial year 2016-17 guidance could be revised upwards.
• Sun's valuations are compelling. The base business is valued at price to earnings multiple of 24 times versus 26 times earlier, reflecting the ongoing challenges in the U.S. generics industry.

CLSA raised Sun Pharma's FY17 earnings per share estimates by 6 percent, even as it cut the estimates for the next two financial years by 2-3 percent.

JPMorgan

• Retains ‘Overweight' rating.
• Cuts price target from to Rs 800 per share from Rs 875.

Sun Pharma could face downside risks to its multiples, if earnings disappoint down the line or if there's adverse news flow from the U.S. Department of Justice's investigation into alleged price rigging by generic drug makers, JPMorgan said in its note to clients.

Here's what else JPMorgan had to say

• Management maintaining previous guidance of 8-10 percent despite Q2 beat reflects a tough U.S. generic pricing environment.
• The stock has de-rated over the last year and currently trades at 19 times FY18 earnings per share versus its long-term average of 23-24 times.
• Halol clearance, better approval rates, the earnings growth trajectory of the ex-Taro business and potential accretive M&As could be triggers for the stock.