Import alert fears to continue to weigh on stock in near term

Import alert fears to continue to weigh on stock in near term

FPJ BureauUpdated: Friday, May 31, 2019, 09:05 PM IST
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MUMBAI : With Ranbaxy Laboratories Ltd’s troubles with the US regulator still fresh in the minds of investors, analysts expect sentiment for shares of Dr Reddy’s Laboratories Ltd to be negative until the management resolves the US Food and Drug Administration’s issue with three of its units.

The stock hit a 3-month low of Rs 3,632 and was the worst performer among constituents of the NSE’s Nifty. A massive build-up of short positions in its November futures aggravated the fall, with open interest rising nearly 70%.  Analysts said that though issues relating to Dr Reddy’s facilities are not as serious as those faced by Ranbaxy, worries remain over monetisation of some blockbuster opportunities like Nexium and Gleevec.

“Copaxone and Gleevec are the critical approvals that were being expected and could have their APIs sourced from the Srikakulam unit… There could be an hit of about 15% on EPS based on FY17 (2016-17, Apr-Mar) earnings estimates if warning letter gets converted into an import alert,” Meeta Shetty, analyst at Kotak Securities, said.

Dr Reddy’s said the warning letters will not have any immediate impact on production. “It is just only (a) warning letter. We will have to respond within 15 days. No import alert has been issued,” Dr Reddy’s Chief Financial Officer Saumen Chakraborty said.

He said while Duvvada and Miryalaguda units do not have any critical products, Srikakulam has some key products for which the company is engaged in implementing de-risking measures.

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