See 10% overall growth for Sun-Ranbaxy entity: Surajit Pal

Talking about the Sun Pharma-Ranbaxy merger, Surajit Pal, pharma analyst at Prabhudas Lilladher said it would take time for the combined entity to run smoothly and positive impact on the EBITDA margins would only be seen after 12-18 months.For the investors who are holding the stock should continue to hold it but fresh entry should be made only if it corrects from the current levels, says Pal.According to him the overall growth for the combined entity would be around 10% till the time they come out with a valuable product.Sun Pharmaceutical Wednesday began the integration of Ranbaxy ’s business following the successful closure of its merger. The integration, planned by Sun Pharma over many months, will focus on supporting strong growth, the company said.Below is the transcript of Surajit Pal’s interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.Reema: We have got the margin performance of the combined entity at 76 percent gross margin, EBITDA of 32 percent and net margins of 20 percent. With the expected synergies of USD 250 million how do you think the margins of the combined entity will look like? A: Initially it will be painful journey because when you are merging a company the biggest thing comes over here is that organisation of culture. There are many problems in hand with Ranbaxy which has to be turned around by Sun Pharma. So, you have to give time, at least a year or year and a half to get it around. After that if everything goes smooth then you can expect some kind of push in the EBITDA margin. Sumaira: The company spoke about some focus areas of the merged entity would be on R&D, etc but one of the other things they have mentioned is that they are looking to not just pursue partnerships but also strengthen the M&A bandwidth. Already being the largest pharma entity now in India how do you think things are going to move now for this new entity? A: Definitely that would be a bit tough. In terms of growth if you compare for the last five years, that kind of growth may not be possible for the large entity; not only the base but also the new product approval. So that may not be big enough in terms of what they have, the current champions product. So, what could happen is that initially till the time they come out with a very valuable product their growth might be around 10 percent or below 10 percent overall. Reema: Your sense is given the in-house problems with Ranbaxy as well as the general issues with integration, growth of the combined entities will slowdown before it gets better and perhaps in year or two growth could be maybe in high single digits or at best about a 10 percent. So, in that case what is the best approach for approaching stock like Sun Pharma now? A: Sun Pharma has always been a darling of the market, given the kind of weightage it has. So, I believe that if you are holding you should continue to hold. At this point of time if there is correction then you could make an entry but not make a new entry at the current valuation.