Hold Merck; target of Rs 990: Centrum

Centrum's research report on Merck

We maintain Hold rating on Merck, with a TP of Rs 990 (earlier Rs 720) based on 14x December’18E EPS of Rs 70.5. Merck’s pharma segment (77% of revenues) reported 16%YoY growth in revenues, while chemical segment (23% of revenues) posted 23% YoY decline, affecting overall sales growth. Its EBIDTA margin improved 930bps to 16.8% and net profit grew 120%YoY due to margin improvement of both pharma and chemical businesses. We expect the company’s performance to improve as vitamin E API and Evion brand are out of price control and exhibiting good growth. We recommend a switch to Sanofi India or Aurobindo Pharma.

We have retained Hold rating for the scrip, with a TP of Rs 990 based on 14x December’18 EPS of Rs 70.5, and with an upside of 15.8%. We have rolled over our valuations from March’18 to December’18 for the company. Merck has posted excellent results for Q3CY16 due to the change in product mix with higher growth of high margin pharma business. We expect the company’s performance to improve further. Merck’s major brand Evion and API vitamin E have come out of price control. However, its major CVS brand Concor went under price control in July’14. We recommend a switch to Sanofi India or Aurobindo Pharma.