CLSA has downgraded Cadila Healthcare to 's ell' from 'buy' and cut the target price for the stock to Rs 250 from Rs 430 as it believes the US Food and Drug Administration's (US FDA) observations on company's Moraiya plant could lead to delays in product approval.
US FDA recently inspected Cadila's Moraiya facility and issued a Form 483 with 14 observations.
The brokerage has estimated that the Moraiya plant contributes 45-50 per cent of US sales and one third of its 100 plus ANDAs are pending approval.
CLSA said the observations are related to potential product contamination, aseptic process validation, documentation and data storage.
The company has said that there are no repeat observations or data integrity related observations.
The brokerage said it is concerned about potential product contamination issues highlighted by the regulator as past precedents suggest that such observations result in approval delays or supply disruptions for existing products.
Contamination issues also increase probability of escalation to a warning letter, said CLSA."We cut US sales forecasts by 12-17 per cent over FY20-21 assuming delays in approvals and disruption in existing supplies due to remedial action.
This drives EPS cut of 19-24 per cent for FY20-21," said CLSA.