Shares of Sun Pharmaceutical Industries slumped as much as 16 per cent to Rs 799 on Tuesday after India's largest drugmaker issued an earnings warning. Sun Pharma said its revenue in fiscal 2016 would be flat at best as it struggles to fix manufacturing problems at Ranbaxy Laboratories, which it bought last year.
In addition to the revenue impact, Sun Pharma also said that profits may also be adversely impacted due to certain expenses/charges arising out of integration as well as remedial actions.
The efforts are part of Sun Pharma's integration of Ranbaxy, which it bought for $3.2 billion last year betting to fix manufacturing issues which have led Ranbaxy's India plants to be barred from exporting to its largest market, the United States.
Sun Pharma also said that it might also decide to shed some low-margin businesses that it believes don't hold long-term value, it said. "We have evaluated two to three businesses and we are thinking which one to divest," Sun Pharma's billionaire founder Dilip Shanghvi told analysts on a conference call.
Most related costs will be one-off, Mr Shanghvi said on the call.
Gaurang Shah, assistant vice parliament of Geojit BNP Paribas Financial Services, attributed the selloff to a kneejerk reaction after the earnings warning. He has a positive stance on the stock and sees today's selloff as a good opportunity to buy Sun Pharma from a long-term perspective.
He says Sun Pharma shares have support at around 850 levels.
Many brokerages have cut their earnings-per-share (EPS) estimate of Sun Pharma following the profit warning. Macquarie has cut EPS estimate by 15 per cent for FY16 and 10 per cent for FY17.
Sun Pharma has been facing supply constraints due to a ban on its own Halol plant as well, and said it expected that would continue "for some more time till all the remedial steps at Halol are completed."
Dhananjay Sinha, head of institutional research at Emkay Global Financial Services has a cautious stance on Sun Pharma. It will take some quarters for Sun Pharma to resolve issues pertaining to Ranbaxy merger, he added.
Synergy benefits from the Ranbaxy deal are now expected to be 15 to 20 per cent more than the company's original target of $250 million by 2018, Sun Pharma said in a statement.
At 9:40 a.m., Sun Pharmaceutical shares were down nearly 11 per cent at Rs 845 as compared to a 0.26 per cent gain on Nifty.