Medpro buy to boost Cipla's growth in Africa, say analysts
Cipla's plans to buy beleaguered South African firm Cipla Medpro will help it boost its prospects in Africa, a key export market for the Mumbai-headquartered company, and will be accretive to earnings, analysts say.
November 22, 2012 / 16:40 IST
Moneycontrol Bureau
Cipla's plans to buy beleaguered South African firm Cipla Medpro will help it boost its prospects in Africa, a key export market for the Mumbai-headquartered company, and will be accretive to earnings, analysts say.The company had said on Wednesday it is in "preliminary discussions" to acquire 51 percent stake in Cipla Medpro South Africa for 8.55 rand per share, about USD 220 million.Medpro is South Africa's third biggest drug maker with annual sales of about Rs 1,000 crore. It will be Cipla's first international acquisition in its history.It doesn't yet own any equity stake in Cipla Medpro but has had a marketing agreement with it. The African firm has been facing uncertainty following the suspension of its long serving CEO Jerome Smith in August this year.Cipla's entry as the majority shareholder will help stabilise the operations and remove status over the uncertainty of the marketing agreement, said Krishna Prasad and Priti Arora of Kotak Institutional Equities."Cipla has initiated the transition from a partnership model to establishing its presence in export markets. Cipla has started its own filings in the US and is building a marketing presence in regulated markets. The Medpro deal is in line with this strategy and will provide the front-end capability in one of Cipla's key export markets (Africa accounted for 40 percent of exports and 21 percent of total sales in FY 2012)," the analysts said.With this acquisition, South Africa will become the second-largest drug market for Cipla, where the company hopes to capture 5 percent of the market, according to Angel Broking. "The South African market is estimated at about USD 4 billion, growing at about 10 percent and comprises about 35 percent of the total African market. While the profitability of the acquired business is not known, the business is likely to add Rs 75 crore on the net profit
level," the brokerage said.Cipla had consolidated net cash of around Rs 1,000 crore as of FY12 and this acquisition will not put any strain on its balance sheet, analysts add.Angel Broking has an "accumulate" rating on Cipla, with a target of Rs 419, while Kotak advises investors "reduce" investments in Cipla with a target price of Rs 400. Cipla shares were trading at Rs 390 on NSE, up 0.2 percent in morning trade. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
