Accumulate Abbott India, says Aashish Tater

Accumulate Abbott India, says Aashish Tater, Head of Research, Fort Share Broking.

Tater told CNBC-TV18, "If you see MNC pharma space and other MNC, we recommend on a model where the company parents go and acquire other companies at much higher valuations than their subsidiaries are available at. That gives a arbitrage in terms of annualized equivalent value. Take a snapshot of 2010 when Abbott India actually acquired Solvay Pharma, the Belgium based company. They roughly paid an annualized equivalent value of 12.8%. Solvay India got merged with Abbott India recently and now it’s a parent product portfolio across various key areas that company has."
He further added, "It’s a strong product portfolio and if I take a call from annualized equivalent value, I am ignoring this particular year itself, because there will be lot of synergy developments that will happen and it’s very difficult to predict what will be the PAT for this particular year. But if we roughly exclude the error that the companies might have synergy problems, which will be short-term because of good quality management we feel the company from one and a half year perspective is available at an annualized equivalent of 16.82%."
"The company is having free cash of approximately Rs 230 crore odd. Which if I add current year’s profit which we roughly worked out at around Rs 100-120 crore and adjust the dividend, we feel the company would be having close to Rs 300 crore of cash by the year end on a market cap of Rs 3,000 crore and 25% is the free flow for the company. Work out this on the way the Abbott management has been guiding. Exact annualized equivalent value if I just try to  replicate, it gives me a target of a very conservative side of Rs 2,000 from next 18 months perspective. But this is very safe stock for investors who have got that time horizon and this will change the entire scenario for MNC companies."
"Right now if I try to take a market cap-to-sales ratio for something like Wockhardt; we did it and we made lot of money for our investors, I personally feel this could be a very good bet from next 3-4 years perspective. We will have bargaining power if the company makes a delisting move, because eventually I don’t think any reason for Abbott India to remain listed in the space given its product portfolio is expanding and paying a premium to current price by Rs 500-600 I think it will be peanuts."
"So if there is a delisting move in next 24-36 months we feel the price that we would ask from the company if anytime such happens will be at least Rs 3,000 and then the market cap-to-sales ratio will be very less even at that level, so a safe stock from our side with a long-term horizon. Keep an accumulate view right now because in next six months we do not foresee lot of price movement into the stock, but days are going to be very nice for this particular company from long-term perspective." Disclosure: I have no holdings in the above stock.