Equity Futures
US FDA's upgraded tag on Cipla Goa unit sparks bullish bets
This story was originally published at 19:32 IST on 31 October 2024
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By Anjana Therese Antony
MUMBAI – The US Food and Drug Administration's 'voluntary action indicated' tag on Cipla's Goa unit came as a positive surprise for investors, following which traders placed aggressively-bullish bets in the derivatives segment of the company's stock. The new classification by the FDA removed a major regulatory overhang for the company. Premiums on deep out-of-the-money call options of Cipla more than tripled and those on put contracts plunged.
The stock surged and closed more than 9% higher at INR 1,551.75 on the National Stock Exchange. The volume of stock traded also increased a whopping 244% from the previous session to 17.45 million, nine times the one-month daily average volume of nearly 2 million shares.
The stock closed higher this week after staying lower the previous two weeks. On a monthly basis, it closed lower for the second straight month, falling 6.2%, or more than INR 100, during this period. Support for the stock is now seen at INR 1,520-1,500 and resistance at INR 1,580-1,600 in the near term, a technical and derivatives analyst at a domestic firm said.
Premiums on INR 1,560-1,800 call options of Cipla expiring Nov. 28 increased 116-456% and those on INR 1,560-1,420 declined 70-81%. The maximum open interest addition was at INR 1,700 call and INR 1,500 put. Traders also added long bets in the November series of Cipla, with open interest rising over 35% to 15.69 million. The contract closed nearly 10% higher at INR 1,566.
The Goa unit, which has faced compliance challenges since 2019 and had got a warning letter from the US drug regulator in 2020, was upgraded with the new tag Wednesday, putting an end to its troubles. The Goa unit would contribute $160 million–$170 million to the company's revenue, Nuvama Institutional Equities said in its report. The broking firm raised the stock target price to INR 1,601 from INR 1,593 earlier and maintained the 'hold' rating.
The new tag given to the Goa unit paves the way for Cipla to launch pending abbreviated new drug applications from this facility, particularly for the cancer drug generic Abraxane, which would be a $120-million opportunity, Nuvama Equities said. Revenue from Abraxane is expected to be $21 million in the financial year 2024-25 (Apr-Mar), $64 million in FY26, and $85 million in FY27, the brokerage added. The company's abbreviated new drug application filings or approvals were slower after FY18, falling to 12 applications in FY24 from 32 in FY17, it said.
On Wednesday, Cipla's shares had closed 4% lower after the company reduced the lower band of US quarterly sales guidance to $230 million-$240 million from Jan-Mar onwards, compared to $235 million-$240 million announced in July. For the September quarter, the company posted a 15% on-year rise in consolidated net profit to INR 13.03 billion. Its revenue rose 5.6% to INR 70.51 billion.
The Indian equity market is expected to remain weak next week, given the still expensive valuations, the bearish approach of foreign investors, and a slowdown in corporate earnings growth. The Nifty 50 closed 0.6% lower at 24205.35 points and the BSE Sensex ended 0.7% lower at 79389.06 points Thursday. Near-term support for the 50-stock index is seen at 24100-24000 points and resistance at 24400-24500 points.
Premiums on 24200-25000 call options of Nifty 50 expiring next week declined 22-58% and those on 24200-23200 put contracts rose 18-24%. The November futures contract of the index closed at a 200-point premium to the spot level and open interest rose nearly 36% to 10.61 million.
The NSE and BSE will hold a Muhurat trading session Friday. The pre-open session will start at 1745 IST and the special live trading session will begin at 1800 IST and end at 1900 IST.
--Nifty 50 Oct closed at 24203.95, down 167.10 points; 1.40-point discount to spot index
--Nifty 50 Nov closed at 24405.95, down 100.55 points; 200.60-point premium to spot index
--Nifty 50 Dec closed at 24561.05, down 92.85 points; 355.70-point premium to spot index
Reliance Industries, HDFC Bank, Larsen & Toubro, ICICI Bank, State Bank of India, Tata Motors, Infosys, Tata Consultancy Services, Cipla, ITC, Tata Power, Kotak Mahindra Bank, Bajaj Finance, Axis Bank, Vedanta, Mahindra & Mahindra, and Hindustan Aeronautics were the most actively traded contracts. End
Edited by Rajeev Pai
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