Stock has been rising since & had touched high of 650
on 09-Oct-2013. Stock is currently trading at 613.
Long term positive vibes about acquisition
: Sun Pharmaceutical has a proven track record of buying
distressed assets and turning them around.
: Acquisition is via stock deal, so no cash outflow or no
need for new debt for acquisition for Sun Pharmaceutical
: Daiichi Sankyo gets right to nominate one director to
Sun Pharma’s Board of Director. Daiichi Sankyo is having sales around 66000
crore. Sun Pharmaceutical can capitalize on relationship with Daiichi Sankyo
: Expectation of management - $250 mn operating
synergies by the third year of the acquisition
Medium term challenges
: USA FDA regulatory concern about Ranbaxy’s Indian
Plant.
: Current low operating margin of Ranbaxy Laboratories
Sun Pharmaceutical’s management comment on USA FDA regulatory
concern
“It is difficult for me to respond. We have some idea
about the extent of the issue that they have. We honestly do not know the
degree of effort which is required to address the underlying issue. I
personally don’t think the Japanese were involved in day-to-day activity. My
sense is that the essential point of communication was with Ranbaxy management
and FDA.”
Looking at Dec-13 9month result (Apr-13 to Dec-13) Indian
currency deprecation has been favourable to Sun Pharmaceutical. Sun Pharmaceutical
had decent CAGR in past. Even looking at Sun Pharmaceutical pre-merger price (Rs
572), there was decent scope for appreciation without considering effect of Ranbaxy
Laboratories deal.
Stock outlook in the medium term
: There may be hiccups or underperformance if USA FDA regulatory
issue is not gets resolve /drag further.
: Positive surprises if USA FDA regulatory issue gets resolve
Stock outlook in Long term
: Deal has potential to add substantial value.
Continue to hold Sun Pharmaceutical share & keep an
eye on
: Indian currency movement against dollar
: Ranbaxy Laboratories USA FDA regulatory issue.
: Sun Pharmaceutical Guidance for FY 14-15
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