Should you tender Matrix shares?

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The open offer for Matrix from Mylan opens today. Deepak Jasani of HDFC Securities and Shahina Mukadam of IDBI discuss the fundamentals of the business and give their suggestions on what to do if one holds the stock. 

Excerpts from CNBC-TV18's exclusive interview with Shahina Mukadam & Deepak Jasani:

Q: Walk us through the price that has been offered for matrix and if you were holding the stock what would you do? Would you tender?

Mukadam: Tendering in the stocks at Rs 306, which is the offer price, is a better option. If you see the valuation of Matrix at this price, it is just over USD 1 billion. The EV is around Rs 4760 crore.

If you compare this with the consolidated turnover of the company, it is almost four times this, which is not a bad price for this stock. On an EBITDA basis, while the last quarter numbers were not good, if you look at normalised EBITDA of 20%, it is still discounting at around 20 times. So it is not a bad price.

Q: Would you agree to tender at Rs 306?

Jasani: Yes, I would think so. We had come out with a note in early October suggesting our clients to do an interest arbitrage kind of thing and this price holds back the results which were quite unexciting. Hence one would suggest tendering the shares in the offer.

Q: What if you played it from the flip side - what sort of positives can a tie-up with Mylan bring to a company like Matrix? Do you think the financial performance for the company might actually improve in the next 2 or 4 quarters?

Mukadam: One cannot really be sure of improvement in performance because of this tie-up in the near term or next 3-4 quarters, simply because getting registrations is a process by itself. So whatever registrations Matrix has as of now, those will be utilised over next couple of quarters. Looking back, the last quarter numbers were not good.

There is a pressure on Matrix numbers because of the increase in contribution of antiviral, anti AIDS products, which are low margin products and this is going to continue for sometime. So it will only be in the longer term that Mylan would utilise the good facility of Matrix to start producing higher end products.

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