Sensex Opens Higher; Lupin Plunges 5.5% on Weak Q4 Numbers

Thu, 25 May 09:30 am

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Stock markets in Asia are higher today as investors look ahead to an OPEC gathering widely expected to extend output cuts. The Nikkei 225 is up 1.20%, while the Hang Seng is up 0.54%. The Shanghai Composite is trading higher by 0.09%. US equities closed higher on Wednesday as investors cheered the Federal Reserve's plan for scaling back its massive US$4.5 trillion balance sheet.

Meanwhile, share markets in India have opened the day on a positive note. The BSE Sensex is trading higher by 106 points while the NSE Nifty is trading higher by 22 points. The BSE Mid Cap index opened up by 0.3%, while BSE Small Cap index has opened the day up by 0.4%.

Barring healthcare stocks and consumer durables stocks, all sectoral indices have opened the day in green with realty stocks and information technology stocks leading the gains. The rupee is trading at 64.86 to the US$.

IT stocks opened the day on a mixed note with NIIT Ltd and Infosys leading the gainers. HCL Technologies share price opened the day on a negative note after the company announced that it will buy back its shares at Rs 1000 apiece, a 17% premium over the current market price.

The buyback size is Rs 35 billion, which represents 16.39% and 13.62% of the aggregate of the fully paid-up equity share capital and free reserves, respectively, as per the standalone and consolidated audited accounts of the company for the financial year ended 31 March 2016.

The firm's announcement comes in accordance with the trend that is going on in the Indian IT industry as the companies are under pressure to return excess cash in their books to shareholders through generous dividends and buybacks.

For instance, TCS announced the mega buyback offer of Rs 160-billion, which is underway right now. Infosys has also announced its capital allocation policy to return up to Rs 130 billion this financial year through dividend and/or buyback.

Flush With Cash

The cash on the books of large Indian IT firms is legendary. At the end of 2016, the top three firms - Infosys, TCS, and Wipro - had cash and current investments of Rs 304.8 billion, Rs 386.7 billion, Rs 331.6 billion. That's a lot of cash! And the pile grows every year. This seems to be a good problem to have.

Tanushree Banerjee, Co-head of Research has written everything you need to know about the share buybacks in the IT sector and has offered insights on how the firms deal with the huge cash piles (Subscription Required). Here's a snippet of what she wrote:

• "So, what should long-term investors do? There's no doubt that tendering a part of your shares in a buyback could be a tempting proposition, especially if the buyback price is higher than the market price.
  
  However, it's important to understand that buybacks reduce the outstanding number of shares. Thus, the shareholders who don't tender their shares will end up with a bigger piece of the pie."

Moving on to the news from the stocks in the pharma sector. In the latest development, Sun Pharmaceutical Industries Ltd announced that the US Food and Drug Administration (USFDA) has accepted its Biological License Application (BLA) for tildrakizumab. Tildrakizumab is an investigational IL-23p19 inhibitor being evaluated for the treatment of moderate-to-severe plaque psoriasis.

The BLA filing for tildrakizumab was submitted by Merck & Co., Inc., Kenilworth, NJ, USA. The BLA is a request for permission to introduce, or deliver for introduction, a biologic product into interstate commerce, as per the USFDA.

The USFDA filing acceptance follows the acceptance of the regulatory filing of tildrakizumab by the European Medicines Agency (EMA) in March 2017. In 2014, Sun Pharma acquired worldwide rights to tildrakizumab from Merck, known as MSD outside the US and Canada.

Post-approval in the US, Sun Pharma will be responsible for all other regulatory activities, including subsequent submissions, pharmacovigilance, post approval studies, manufacturing and commercialisation of the approved product. Merck is eligible to receive milestone payments and royalties on sales of tildrakizumab.

In another development, Lupin share price plunged 5.5% after the company received six US FDA Form 483 observations for its Indore plant. The facility was inspected the US drug regulator between May 8 and May 19.

Meanwhile, Lupin reported a 49.61% dip in consolidated net profit to Rs 3.80 billion for the fourth quarter ended March, mainly on account of an increase in expenses and the mpact of foreign exchange fluctuation.

The company had posted a net profit of Rs. 7.48 billion in the corresponding quarter of previous fiscal. However, consolidated total revenue from operations rose to Rs 42.53 billion for the quarter under consideration as against Rs 41.97 billion for the same period year ago.

Pharma stocks opened the day on a mixed note with Elder Pharma and Orchid Pharma leading the gains.

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