Sun Pharmaceuticals Industries touched a new all-time high on Wednesday by becoming the eighth most valuable Indian company in terms of market capitalisation as investors lapped up shares on expectations that its improving US product mix and a weaker rupee may have helped the company witness strong growth in the three months to September.
Shares of the pharma giant advanced nearly 6% to an all-time high of R650 on the BSE. The scrip eventually settled at R644.60, up R31.25 (or 5.09%) from its previous close. The company's market cap of nearly R1.34 lakh crore surpassed those of Bharti Airtel (R1.33 lakh crore) and FMCG giant Hindustan Unilever (R1.32 lakh crore).
Experts attributed the staggering rise in Sun's stock price to its operational performance. An improving US product mix for Sun Pharma and other generic drug makers would be the key margin driver in the medium term, said analysts. The street is expecting the pharma major to post strong operating performance growth of 20-25% on a y-o-y basis for the quarter ended September 2013, they said.
“We believe the US launches will be the key driver of earnings and stock performance in the current quarter. We expect an improving trend in the US product mix to be the key margin driver for Indian generics... and offset weak domestic growth in Q2FY14. Sun Pharma will lead the pack with windfall gains (Doxycycline, Prandin) in the US,” said Kotak Institutional Equities in its research note.
In addition to the improved operational performance, Sun and other pharma companies have also benefitted from the growth moderation in some front-line FMCG companies, which has led to a churn in investor portfolios. Thinning volumes and high valuations, coupled with royalty and tax increases at firms like HUL and Nestle, have prompted investors to realign their investments towards sectors like pharma.
The rise in Sun's share price also pushed the BSE Healthcare index higher by 2% to a fresh 52-week high of 9,890.66. Moreover, Wednesday's gains also strengthened Sun Pharma's year-to-date (ytd) performance vis-a-vis other pharma stocks, the healthcare index, and the Sensex.
Bloomberg data show Sun has given ytd returns of 75.28% as on Wednesday's close compared with 49.1% by Lupin, 31.6% by Dr Reddy's Laboratories, 8.1% by Glenmark Pharma and -24.3% by Ranbaxy.