Motilal Oswal
Sun Pharma (Buy)
CMP: ₹525.10
Target: ₹675
The US Food and Drug Administration (USFDA) inspected Sun Pharmaceutical Industries’ Halol plant from February 12-23 this year. Notably, the number of observations has come down to three this time from nine in the last inspection that was conducted in December 2016.
Given that none of three observations issued in the recent inspection are serious in nature (two are procedural in nature and one is related to aseptic processing of drug products), we expect resolution of the facility over the coming months.
At current valuations, the stock does not fully value its rich US pipeline and stable cash-generating domestic business. Sun Pharma has historically commanded 20-25 per cent premium to Indian pharma peers, typically at 25-27x one-year forward P/E multiples. The company is trading at about 24x/19x FY19E/20E PER, which is about 15 per cent below 10-year average valuations.
