When the sun shines

Non-executive director Sudhir Valia sells Sun Pharma stock worth ₹2.91 billion held by Raksha Valia

These are sunny days for Sun Pharma. On the back of higher sales of specialty products in the US, the company managed to beat analyst estimates and reported 70% surge in net profit at Rs.18.13 billion in Q2FY21. In the year-ago period, net profit stood at Rs.10.64 billion. The company’s revenue from operations also rose 5.29%, from Rs.81.23 billion to Rs.85.53 billion, over the same period.

Along with the broad market, the stock has recovered remarkably from the March low of Rs.312, and currently trades near the Rs.610 mark, having hit a 52-week high of Rs.628 on January 11. And making hay while the sun shines, Sudhir Valia, brother-in-law of Sun Pharma’s MD Dilip Shanghvi, sold five million shares worth Rs.2.91 billion. The shares, held by his wife Raksha Valia, were offloaded on December 31, a few weeks before the company’s Q3 results announcement. While her direct holding is now down from 1.41% to 1.2%, Sudhir Valia also holds 0.60% stake in his personal capacity.

In May 2019, he had stepped down as whole-time director but continues as non-executive director of the company. After the latest selling, overall promoter holding stands at 54.48%. While there has been a lot of stock pledging and revoking of pledge by Raksha Valia, this is the first time in four years that her holding was directly sold in the open market.

Due to the operationally strong quarter, analysts at Elara Capital have maintained a ‘Buy’ rating with a target price of Rs.600, which the stock has already breached. They expect revenue to scale up due to high upfront investment in specialty business, but with the caveat: “Prolonged cash burn is a key risk to our call.”

Analysts at Edelweiss remain cautious on the sustainability of growth. They note that Sun Pharma’s Absorica faces generic competition in the US and Ilumya’s peers have shown high double-digit growth in Q2. Further, the report adds, “Increasing R&D investments and marketing spends on specialty restrict margin levers.” They have a ‘Hold’ rating.

Meanwhile, between June 2020 and September 2020, foreign investor selling has been absorbed by mutual funds. While MF holding increased from 10.52% to 10.71%, FII holding came down from 12.70% to 12.38%. Of the total MF holding, ICICI Prudential MF is the biggest with 3.14% stake, followed by SBI MF at 1.97%.