Investors worry about poor corporate governance practices at Sun Pharma and price erosion in the US generics market.
The question was raised quietly but it weighs heavy, especially on a market leader that has been under attack over the past few months. In two notes, dated January 28 and February 18, the Securities and Exchange Board of India (Sebi) asked Sun Pharma to explain a “diversion of 420 billion to a pharma distribution company Aditya Medisales (AML)”, according to media reports. This was reported by a business daily on March 6. The Dilip Shanghvi-led company has dismissed the allegation as baseless, but the niggling questions on corporate governance practices at the pharma major, which started last September, seem to be compounding.
On December 3, 2018, Shanghvi had decided to break his silence holding a conference call. While this was meant to calm the nerves of investors, his responses, in fact, made matters worse.
Following his interaction with analysts, the market capitalisation of Sun Pharma fell below 1-trillion mark for the first time since August 2013. In two days, investors of Sun Pharma ended up losing 110 billion with the stock hitting a six-year low of 375. The stock price has marginally recovered to 455 as of March 8 on the back of better-than-expected third quarter results but the overhang is still clearly visible. At its peak, Sun Pharma’s market capitalisation had reached above 2.5 trillion, propelling Shanghvi to replace Mukesh Ambani for the title of the wealthiest Indian. But now “a massive wealth destruction has taken place. The stock has fallen by more than 60% in the past five years post the Ranbaxy acquisition,” says Jeena Scriptech Alpha Advisors’ managing director Gaurav A Parikh.
The viral circulation of the Australian brokerage firm Macquarie’s note Murky Waters of Sun Pharma last September and complaints of a whistleblower — raised last November about corporate governance practices at the company — dented the pharma giant’s reputation.
This story is from the March 29, 2019 edition of Outlook Business.
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This story is from the March 29, 2019 edition of Outlook Business.
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