Sun Pharma:The Management May Be Over Cautious Over Its Dismal Guidance---Below 785, Good Demand Zone Might Be 765-750

Looking at the chart, Sun Pharma (CMP:805) has immediate support of 793-785 and only sustaining below that it may further fall to 765-750 zone. Only consecutive closing below 750, Sun Pharma might fall further towards 725-700-680-650-625-610 area in the worst bear case scenario.

On the upside, sustaining over 807-815 zone, immediate to short term target may be 830-836-851 and 862-872-885-900-912. Sustaining above 912, Sun Pharma may scale 935-960*-970 in the mid term and consecutive closing above that 1000-1012 & 1041-1075 and 1125-1200 might be the target in the long term.

In brief, technically for Sun Pharma, 785-765-750 might be very good demand zone and 960-970-1010 may be a good supply zone in the near term.

Bottom Line: Technical Trading Levels (Positional)

	SL</>10	FROM SLR
		Sun Phm	CMP	805
			T1	T2	T3	T4	T5	T6	T7	SLR
Strong >	795		807-815	830-836	851-862*	872-885	900-912*	935-960*	970-1012	<785
Weak <	785		765-750*	735-725	700	680	650	625	610	>795

We all know, on Monday in a con call (after market hours), the Sun Pharma management lowered its guidance for FY-16 citing reasons for one time integration costs with Ranbaxy, ghosts of FDA at some of its Ranbaxy plants (specially Halol) and consequent prolonged impact of remediation measures there along with divestiture of low margin assets (to discontinue some unprofitable Ranbaxy products). Also higher investments in R&D could further put pressure on margins.

Going by the commentary of the management, it may be over cautious in its guidance and the market is also expecting such scenario given the dismal set of Q1 (March) numbers with no FY-16 guidance. Even now, rather than a number, its guidance only indicates that top line will either be flat or decline compared to FY-15 and bottom line could be adversely affected due to some one time charges related to Ranbaxy.

The silver lining is that Sun Pharma expects things to look up after FY-17 with sustainable growth in business in the countries it operates in. The product rationalization/culling may result in higher profitability than before. It is also projecting 15-20% increase in merger related synergies and expecting the over all merger with Ranbaxy will be EPS accretive from FY-17 onwards. Also, apart from Halol, it is planning to set/redesign all the controversial plants with Ranbaxy to be FDA compliant gradually one by one. But this issue of FDA ghosts will be more clear towards the end of FY-16.

Halol plant contributes around 10% sales of Sun Pharma and by FY-17, if the FDA issue is resolved, then we may see some improvements in its bottom line (being a cost effective plant). It has also good & profitable product launches in the pipeline in the near future.

Looking ahead, the whole merger issue with Ranbaxy may be debatable as "sheer arrogance of money" along with investments in Suzlon by Sanghvi brothers. But at the end of the day, Ranbaxy was a good business in distress for lack of proper management & disclosures. Acquisition swap ratio & procedure may also be not right. For the time being, Ranbaxy may be a severe cause of pain, but as the business fundamentals of Sun Pharma is quite good, it may be temporary. Selling in Sun Pharma may be over done in a single day and smart money might accumulate it in any unusual declines.

Sun Pharma issue may be another example of "Good business in temporary distress".

As par BG metrics, current median valuation of Sun Pharma may be around 825 and its projected fair valuations might be around 950-1100-1250 (FY:16-18) in the current market parameters.

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	LONG TERM	SHORT TERM	MEDIAN VALUE	200-DEMA	10-DEMA
SUNPHARMA	21.93	77.12	34.5	817.95	825.92	821.93	884.29	901.6

SUNPHARMA

29.27

91.75

34.5

944.97

954.17

949.57

884.29

901.6

SUNPHARMA

39.08

109.5

34.5

1091.90

1102.54

1097.22

884.29

901.6

SUNPHARMA

50.05

130.35

34.5

1235.69

1247.72

1241.71

884.29

901.6