Summary
of Contents
STOCK
UPDATE
Welspun
Gujarat Stahl Rohren Cluster: Emerging
Star Recommendation: Book Profit Current market price:
Rs92
Book profit We had recommended a Buy on
Welspun Gujarat Stahl Rohren on April 1, 2004 at a price of Rs31.7
per share and set a revised price target of Rs84. Since then the
stock has appreciated by 190% and well surpassed our price target.
We recommend investors to book profit in the same.
Ranbaxy
Laboratories Cluster: Apple
Green Recommendation: Buy Price target: Rs558 Current
market price: Rs384
Be-Tabs to be earnings accretive
Key points
-
Ranbaxy Laboratories Limited (Ranbaxy) has
acquired a 100% stake in Be-Tabs Pharmaceuticals Limited (Be-Tabs)
of South Africa, for a total consideration of $70 million (500
million ZAR).
-
Be-Tabs is the fifth largest generic company in
South Africa. It is the largest manufacturer of penicillin
formulations and markets and manufactures a portfolio of ethical
and over-the-counter (OTC) solid-oral and liquid formulations in
South Africa. Be-Tabs has annual sales of approximately $30
million, with earnings before interest, tax, depreciation and
amortisation (EBITDA) margin of about 13%.
-
The acquisition of Be-tabs will complement
Ranbaxy's existing business in South Africa. Ranbaxy currently
derives $20-25 million of revenues from South Africa. The
acquisition of Be-tabs will double Ranbaxy's South African
business. With a combined turnover of $50-55 million, Ranbaxy will
now enjoy a market share of 1.6% in South Africa.
-
At $70 million, the deal is valued at 2.2x
sales and 7.7x EBIDTA. Even though the deal appears cheap when
compared to other acquisitions, the price seems fair when viewed
in light of the relatively lower EBIDTA margin and growth rate of
Be-Tabs.
-
Based on the back-of-the-envelope calculations,
we believe that Be-Tabs would add $2.4 million (approximately Rs11
crore) to Ranbaxy's bottom line in CY2007E. Due to Ranbaxy's large
equity base, we believe that the impact on the earnings per share
would be marginal.
-
At the current market price of Rs384, Ranbaxy
is quoting at 20.8x its CY2007E estimated earnings, on a fully
diluted basis. We maintain our Buy recommendation on Ranbaxy with
a price target of Rs558.
SECTOR
UPDATE
Automobiles
The party continues! Tata Motors has
reported better-than-expected sales for November 2006. Its vehicle
sales for the month have grown by 43.1% to 49,061
units. |