Sun Pharma's subsidary Taro shelves plan to invest in Suzlon's US power project

Taro Pharma the subsidiary of India's largest drug maker Sun Pharma has dropped its plan to invest USD250 million in the wind power project in the United States, the company said in a filing to the Securities Exchange Commission. In a seprate filing, Sun Pharmaceuticals, Taro's parent body also informed the BSE about the subsidaries decision, to not proceed with the potential project. 

Taro Pharmaceuticals, on November 17, had proposed a USD 275 million investment in the construction of & acquisition of a wind-powered electric energy project jointly with the affiliates of company's controlling shareholder, Sun Pharma in US. This was to be done with an equity investment of USD 100 million (Sun Pharma and Taro to invest in a ratio of 2:1), with the balance being funded through debt. 

The firm had proposed that the wind energy investment would help reduce its tax liabilities in the United States. The project was to be implemented by Suzlon Energy, in which Sun Pharma managing director Dilip Shanghvi and executive director Sudhir Valia hold substantial stakes. 

The move however did not go down well with the markets as well as with many investors and brokerage houses who termed the proposed investment a non-optimal use of cash and raised concern over the company investing in an unrelated business area. The brokerage firms and investors were of the view that though the tax benefits from the invstment were large, it also came with a substantial investment of about USD100 milions from SUN Pharmaceuticals, that too in the areas where the company has no prior expertise. The Company with the cash balance of USD 1 billion and a low pay out ratio can invest the money into more profitable and viable business activities as it seeks to increase shareholders value. 

The shares of Sun Pharma have been under performing in the markets for the past few months over regulatory concerns with its remediation efforts in its Halol manufacturing units and integration with Ranbaxy. Since Taro's news on the wind power investment the stock has corrected more than 6 percent in the last four consecutive sessions and fallen more than 20 percent since the start of November to touch a 52 week low of Rs 706 which is equivalent to cut of Rs 1,72,000 in its market cap. 

With this news Sun Pharma's shares are likely to see a relief rally from these levels as all the negatives have been factored into its price and one hopes that this should work to calm the investors. Sun Pharma shares closed at Rs 708, down 1.50 percent in the last session.