After the UK-based parent of GSK Pharma announced an open offer proposing to buy nearly 25 percent of the firm at a price of Rs 3,100 per share – a nearly 26 percent premium to the stock's Friday closing price, CNBC-TV18 spoke with Ranjit Kapadia, Pharma Analyst, Centrum Broking, to get his view.
Also read: Parent co announces open offer for GSK Pharma at Rs 3100/sh
Here is the transcript of the exclusive interview.
Q: What is your sense about the open offer?
A: This is a good price. It has premium of 26 percent over the market price and valuations of GSK currently are stretched: it is trading at 44 times calendar year 2013 and about 35 times calendar year 2014 estimates, So, the valuation is currently stretched and offer price of 26 percent premium is healthy.
Q: What may be GlaxoSmithKline Plc’s own reasons to make such an aggressive offer? Won’t an investor naturally smell delisting at the end of it?
A: Last month, the company announced a Rs 850-crore investment in creating a manufacturing facility in Bangalore, India, and that itself indicates that GSK Plc is serious of the Indian market and it might want to make India its manufacturing hub.
However, the plans [for the plant] will come [true] in 2017. So before that, if they are able to increase the stake to 75 percent, which is the maximum allowed, it will be good for the company going further.
Q: How are the fundamentals of the company stacked up for now because in the quarter gone by there was quite a bit of a margin overhang. There were issues relating to the New Pharmaceutical Pricing Policy (NPPP) as well. How to expect the fundamentals going ahead to move?
A: [Recently] traders boycotted the products of GSK and now we got to know that in the last week of November 2013, they resumed purchasing products of GSK. Hence things will move much faster.
However, the NPPP hangover for the three major products like Augmentin, Cetzine and Zentel, where prices have fallen by more than 40 percent, will continue but traders’ boycott will be lifted and this will resume the supply to the market.
Q: Until this trigger most people believed that this stock is trading at extremely expensive valuations, 30 times forward etc, but now that this trigger has played out, what could the upside to the stock be in your mind?
A: Today, the stock is expected to open with a gap up -- I do not know to what level but 26 percent level can be breached within few days.
Q: Would you expect other multinational corporation (MNC) pharmaceuticals to follow suit, as a kneejerk reaction today you will expect the Novartises of the world also to rise but is there any other candidate in your mind that might follow-on GSK’s footsteps?
A: Merck is another candidate. They have got about 51 percent holding and performance also is expected to be better because of NPPP issues because Vitamin E and Evion brand has come out of price control so it is also looking up.
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!
