Saturday, February 11, 2012

Shasun Pharma Sold by the FII IHAG Privatbank, But Maintains 20% UC



By Special Correspondent

Shasun Pharmaceuticals  Ltd (BSE: 524552, NSE: SHASUNPHAR) on Friday had  significant sells of 5 lakh shares by the FII, Privatbank IHAG Zurich AG, amounting to 1.03% of the total shares in the company.  Offloads by IHAG Privatbank occurred in NSE. 

Interestingly, there were no identifiable institutional buyers or promoters, as counterparties to the sale, which means that the massive sell by the FII was picked up by the wider market.

However, Friday was also witness to two large transactions in Shasun Pharma at India’s other exchange, BSE, one amounting to 20 lakh shares and one nearly of 3 lakh shares. While the smaller deal was a day trade by a single party, the bigger one was an exchange of hands involving two domestic entities holding Shasun for some time now, and probably related entities to each other.

Despite the significant sell by Privatbank IHAG, Shasun Pharmaceuticals hit the Upper Circuit Limit of around 20%.
  
Shasun Pharmaceuticals Ltd is a mid-sized pharma company based in India, coming well within the top one-third of the thriving listed pharma space in the country having around 150 players. Headquartered in Chennai, and formerly known as Shasun Chemicals & Drugs Ltd, it leads in products like Ibuprofen, Ranitidine, Nizatidine etc and its products are exported to several countries across North America, Europe, Latin America, & Asia. In recent years, Shasun has also strengthened its position as an emerging CRAMS (Contract Research & Manufacturing Services) player, after the acquisition of a UK based company.

IHAG Privatbank is a noted player in the Swiss private banking industry that basically caters to only High Networth Individuals (HNIs). A part of the still family-owned IHAG Holding, the Zurich headquartered bank operates in segments like lending and trading, apart from private banking. IHAG Privatbank has a worldwide presence in the capital markets, and in India, has backed companies like Elder Pharmaceuticals and the unlisted KPO player, Evalueserve. 

Privatbank IHAG Zurich AG is registered as an FII in India. Its major purchase of Shasun Pharmaceuticals occurred in late 2009, when it picked up a 2.73% stake at around Rs. 27.85 a share. IHAG made significant sells of Shasun during April 2011 at Rs. 78.31, which was near to its 52-Week High, booking over 180% profits at that time. Interestingly, Friday’s sell has also fetched IHAG almost-identical hefty profit margins.

Shasun Pharma has been going through a difficult period in FY’09 & FY’10, before rebounding in FY’11, but still recording only a consolidated net profit margin (NPM) of 3.11%.  The uninspiring margins continued in Q1 & Q2 of the ongoing fiscal, improving only to 4.03%.

This weak fundamental performance was reflected in its market performance too, with Shasun Pharmaceuticals  falling from a 52-Week High of Rs. 88.35 in BSE on 24th May to a 52-Week Low of Rs. 38.10 on 16th December, losing almost 57% in value. However with yesterday’s Upper Circuit, Shasun has rebounded by more than 100% from its year-to-date lows.

The sharp rebound was aided by the anticipation of a good set of third-quarter numbers, the general market recovery, as well as some small quantity buying by some promoter group entities.

In the recently announced Q3 results, a positive turnaround is visible in Shasun Pharmaceuticals with NPM jumping to 8.13%.

The wider market and some influential traders probably reacted to these headline numbers yesterday, taking Shasun Pharma to its Upper Circuit limit of 20% gains. But IHAG Privatbank seems to have taken its sell cue from significant mark-to-market profits due to the sharp rebound from lows , as well as a detailed look at the Q3 results.

The net profit this time has been aided by extraordinary items arising out of changes in accounting rules implemented in this quarter.  The impact of these adjustments is that, if not for these changes, Shasun’s net profit would have been down by Rs. 8.57 crore, which means the NPM is only 5.31%, revealing only a weaker turnaround. Though management recently assured that operating profit margins would be maintained from now on, long-term holders like IHAG probably thought otherwise.

It has been also revealed in Q3 results that this abrupt accounting change may come up for review with the authorities.

Shasun Pharmaceuticals had a healthy promoter stake of 46.73% in Q3, slightly up from Q2. FII stake was at 8.52% and DII stake was at 7.93%.

Stake held by FIIs is down by 1.10% in Q3, while DII stake is down by 0.70%, signaling that institutional investors were offloading Shasun even at relatively low levels. 

As on December 31st, IHAG Privatbank held 1.63% stake in Shasun Pharma, of which 1.03% was sold off on Friday, which hints at a total exit strategy.

It remains to be seen how other large institutional investors in Shasun react to the significant sell by a long-term supporter of the scrip like IHAG Privatbank. These decisions will decide the future of the Shasun scrip, as the stock still has significant institutional participation of over 16%. Major institutional investors in the scrip include QVT Mauritius West Fund and Sundaram Mutual Fund.

It is interesting to note that IHAG’s average sell price on Friday was at Rs. 78.10, quite near to Shasun’s Upper Circuit for the day at Rs. 78.15. It is common for retail investors to mistakenly think that Upper Circuits mean there are no sellers, whereas often this is not the case at all, as this significant sell reveals.

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