Pharma major Wockhardt reversed Friday's losses and gained near 3 percent on Monday morning, as analysts' views that recent plant inspection and subsequent observations raised by US Food and Drug Administration wouldn't impact business much, eased street concerns.
The stock had tanked near 15 percent in last two sessions after news trickled in that the US drug regulator had issued a 483 form through a routine course of inspection of its injectables facility in Aurangabad.
A form 483 is issued when the FDA observes any violation from standard manufacturing practices. This is, however, routine and may or may not result in any enforcement action by the US drug regulator, analysts say.
"These are mere observations at this point (no warning letter/import alert issued), and there is no immediate impact on the business," Citigroup analysts Anshuman Gupta and Prashant Nair said, maintaining their "buy" rating on the stock.
"We believe barring an import alert (worst case), the 13 percent decline in the stock over the last two days factors in the worst," they added.
Another foreign brokerage had said on Friday that even if the FDA does end up sending a warning letter to Wockhardt, it would only affect new approvals in injectables and not the current revenue stream materially. It is expecting less than 5 percent impact to earnings should this facility receive a warning letter.
The Citigroup analysts, though, warn that there is a possibility of further action if the FDA is not satisfied with Wockhardt's response to the observations. They note that the injectables facility doesn't contribute much to US revenues, but as seen with other companies in the past, it is likely that the FDA action could be extended to other facilities.
Citi has a target of Rs 2,500 on Wockhardt shares. At 10:25hrs, the stock was up 2.7 percent at Rs 1,800 on NSE.
Nachiket Kelkar
nachiket.kelkar@network18online.com
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