Broking house, DSP Merrill Lynch has maintained neutral rating on Ranbaxy Laboratories .
DSP Merrill Lynch report on Ranbaxy Laboratories:
Be-Tabs acquisition, a strategic fit
"Ranbaxy acquired a 100% stake in the fifth largest generic company in South Africa, Be-Tabs Pharmaceuticals for USD 70 million, which values the deal at 2.2x sales, and 7.7x EBITDA. We view the deal as reasonable, enabling Ranbaxy to strengthen its position in the South African pharmaceutical market."
Key highlights from the deal
(a) Firmer footing in the largest pharma market in Africa valued at USD 2 billion by IMS (b) Catapults Ranbaxy's position to one of the top 5 players in the market; (c) Acquisition to be funded by existing FCCB proceeds (d) Deal to be EPS accretive from 1st year
Modest earnings accretion to next year's number
"Be-Tabs has annual sales of about USD 30 million with EBITDA margins in the range of 37% which we estimate work to about net margins of about 17-18%. Based on these calculations, we expect the acquisition to add 4% or about Rs.0.6 to Ranbaxy's next year's (CY07E) EPS (fully diluted basis)."
Maintain cautious stance; await more product visibility.
"Maintain Neutral noting steep valuations, uncertainties on new launches in light of FDA manufacturing issue, and likely equity dilution noting acquisition plans."
