Hold Merck; target of Rs 1080: Centrum

Centrum's research report on Merck

We maintain our Hold rating on Merck and retain our TP to Rs1,080 based on 14x December’18E EPS of Rs76.9. Merck’s pharma segment (78% of revenues) reported 12%YoY growth in revenues due to re-stocking by trade post successful GST implementation. Its chemical segment (22% of revenues) posted 12%YoY growth. However, its pharma business performed better than its chemical business. The company’s EBIDTA margin grew 140bps to 18.1% and net profit grew by 11%YoY due to margin improvement. We expect Merck’s performance to improve as the vitamin E API and Evion brand are out of price control and are exhibiting good growth. Merck’s CVS brand Concor grew 14% YoY despite being under price control. We recommend a switch to Sanofi India or Abbott India.

Outlook

We have retained our Hold rating on the scrip and maintained our TP to Rs1,080 based on 14x December’18 EPS of Rs76.9, and with a downside of 6.2%.  We expect the company’s performance to improve further. Merck’s major brand Evion and API vitamin E are out of price control. However, its major CVS brand Concor is under price control. Key downside risks to our assumptions include a slowdown in the domestic pharma market and key upside risks include a reduction in material cost. We recommend a switch to Sanofi India or Abbott India.