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S Ranganathan of LKP shares and securities did not expect Ranbaxy to open weak today. According to him, the stock does not offer too much arbitrage opportunity and can give 5-10% upside.

He feels that this deal lowers the possibility of Pfizer bidding for stake in Ranbaxy.

Excerpts from CNBC-TV18's exclusive interview with S Ranganathan:

 

Q: Why do you think the markets take such a negative, the stocks plunged 6% today?

 

A: It is also got to do with a way the markets globally are behaving; the markets have opened weak today. We did not expect the Ranbaxy stock to open so weak today. It was expected that it will open strongly but that has not happened. As far as the deal is concerned with Pfizer, the issue really is that although Ranbaxy has had such settlements with companies like  Glaxo and Astra . This one is big in a sense that it is for the largest product covering multiple markets. So investors have probably taken slightly short-term view of what things are going at this point in time. Although there is enough clarity on the longer-term issues because of the deal, so that could be one of the reasons of why the stock has corrected in today's trade.

 

Q: Is it a fair argument that some brokerages are putting forward - the 20-month delay will actually see decline in terms of sales further and that should work against Ranbaxy not only the deferment of the launch but also the prospects posted?

 

A: Yes, there is a possibility of that because by what this one and a half years delay has done is that, if you weigh the pros and cons of this vis-à-vis the savings and litigation of the cost and other issues this particular aspect needs to be considered. Probably investor's worry is justified on that account although it is the largest product globally.

 

Q: Do you think this settlement lowers the chances of that Pfizer counter offer that people have been speculating about?

 

A: Most certainly because this settlement does for all purposes lend some comfort to the fact that we may not see a counter offer for the 65% public shareholding of Ranbaxy. So even from that logic if you see, the FII cap on Ranbaxy is about 30%, this probably would amount to a Foreign Direct Investment (FDI) anyway, to the Japanese company offer.

 

Q: What in your eyes is a fair value now for Ranbaxy, not looking at the deal just in itself in terms of valuations what is fair value?

 

A: Our own assessment for our clients was to book some profits today morning when the stock opens strongly. But that has not really happened. So my sense is that many investors have sold today morning because the stock also doesn't offer too much of arbitrage opportunity also, considering the calculation. The stock may just at best scenario give you about 5-10% on the upside, even during few months down the line.