Pharma Stocks Outlook for the week – 23 to 27.11.2015
Range
bound; Dr Reddy's may rebound from lows
Stocks
of pharmaceutical companies are seen range-bound next week as market is likely
to
be volatile due to expiry of November derivatives contracts on Thursday. Pharma
being
perceived as a defensive sector, there could be some buying interest in the
stocks
given
the weak broader market sentiment. However, a number of companies are facing
regulatory
issues and lower sales in the US, which may limit any major upside.
Dr
Reddy's Laboratories has been sailing through troubled waters due to the
warning
letter
issued on its three units by the US Food and Drug Administration, a US law firm
investigating
allegations of false or misleading disclosure of financial performance, and a
US
court asking it to temporarily stop sales of Nexium generic in the that
country. These
factors
had led to the stock falling to a nine-month low of 3,137.85 rupees on
Thursday.
Another
company that will be eyed is Sun Pharmaceutical Industries. Sun Pharma is said
to
have made inquiries with merchant bankers for a bond issue worth 10 bln rupees.
There
was no confirmation from the company on this. Also, Sun Pharma's subsidiary
Taro
Pharmaceutical Industries' $250-mln investment into wind energy is seen
weighing
on
the stock.
Taro
Pharma intends to use the investment to reduce its tax liabilities. The project
would
be
implemented by Suzlon Energy, in which Sun Pharmaceutical Managing Director
Dilip
Shanghvi and Executive Director Sudhir Valia have substantial stake. The use of
shareholders'
money for a project that is not the company's core business is seen as a
negative.
According to Economic Times, Jefferies believes that the development is a
negative
due to the related-party transaction--the involvement of Suzlon Energy--which
according
to Taro Pharma was picked up after an independent bidding process.