How it got into the current mess and how can it get out of it?
The stock of Sun Pharma has been under pressure for a very long time. In fact, if you look at the returns of the stock from 2015 onwards, the stock has lost nearly 75% in value. That is hardly normal for a company that dominates the Indian pharma industry and has been synonymous with the growth of the generics business in India.
How the crisis on Sun started?
The crisis at Sun Pharma began with genuine business-related problems in the pharma industry. There was a subtle shift happening and Indian pharma companies were, perhaps, a little too slow to react. Firstly, the global pharma margins were dipping and the premium pricing that Indian generics enjoyed in the US market was never going to sustain. Secondly, a tough competition was emerging. For a long time, Indian pharma companies thrived on reverse engineering. They would wait for the patents to expire and then launch generic versions of the same drug. With companies from Israel, Turkey and East Europe developing capabilities to deliver drugs even cheaper, that advantage was diminishing. Finally, at some point, pharma pricing became a big political issue in the US. The idea of Indian pharma companies selling generic versions at a premium in the US did not go down well. The result was a slew of FDI investigations, bans and Form 483 strictures which created the first big fundamental challenge for pharma!
Ranbaxy started the rot
When Sun Pharma acquired Ranbaxy in 2008 from Dai-Ichi, it was already touted as an expensive acquisition. Subsequent events like the US FDA strictures and rising competition made the costs steeper for Sun Pharma. At some point, Sun Pharma and its promoters felt the need to churn money faster due to the down cycle in the pharma industry. It is perhaps here that most of the problems for Sun Pharma began. They had already acquired Sun Pharma at steep valuations and inherited most of the problems of the Singh brothers. Secondly, they had real problems integrating Ranbaxy into Sun due to the massive culture gap.
Decoding the Aditya link
Recent whistleblower complaints have revealed a murky nexus between Sun Pharma, its promoters, Aditya Medisales, and real estate companies. As per the complaint, funds had been diverted from Sun Pharma into realty companies owned by the promoter’s relatives via Aditya Medisales. There were also allegations that money had been illegally laundered by the promoter group imposing a huge cost on the company. Dilip Shanghavi had built the company single-handled in the last 35 years. It is time for him to come clean and ensure that his own image and the shareholders of Sun Pharma do not face any further value erosion!
