Why did Sun Pharma correct so sharply in last few days after the results?

The correction in the stock of Sun Pharma was quite sharp in the few days after the results were announced as the company reported a huge loss. For the fourth quarter ended March 2022, Sun Pharma reported a net loss of Rs2,277 crore largely on the back of an extraordinary write-off to the extent of Rs3,936 crore. This charge was towards settlement charges of pending litigations in the US and restructuring of operations in other countries.

Now if you exclude this extraordinary loss, then the Q4FY22 net profit would have actually been higher by 18% yoy. For the fourth quarter, Sun Pharma reported sales up 11% at Rs9,386 crore even as the EBITDA was up by 14.6% at Rs2,280 crore. EBITDA margins expanded 74 basis points to 24.8%. Therefore, if you eliminate the one time charge, the results of Sun Pharma were actually a lot better than the street expectations.

The story of Sun Pharma growth has also been genuine. It was driven by the India formulations business followed by the American formulations business. In Q4FY22, specialty sales were up 30% at $185 million, but more importantly, there was a serious shift out of generics. Also, in the fourth quarter, Sun Pharma saw a higher contribution coming from specialty and branded products. That could tweak the margins positively, going ahead.