Why you should buy Ranbaxy shares ahead of Sun acquisition

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26 Aug, 2025 12:21

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The Competition Commission of India on Monday approved Ranbaxy’s acquisition by India’s number one drugmaker (by sales) Sun Pharmaceutical, clearing the decks for the biggest-ever pharma deal in the country.

Post the important approval, the acquisition now becomes a mere formality and analysts expect the deal to conclude in less than six months outlined by the CCI for the two firms to meet some conditions with respect to divestiture of certain drugs.

With the cloud of uncertainty vanishing from over the deal, traders can look to exploit an arbitrage opportunity between Sun and Ranbaxy shares.

According to an HSBC report, based on the merger ratio of 0.8 between the two firms, there is a 5 percent arbitrage between the two stocks. That is, Ranbaxy shareholders would get 0.8 shares of Sun in lieu of each Ranbaxy share held.

At the time of this writing, Sun shares were trading at Rs 845 per share. Based on the merger ratio, Ranbaxy should trade at about Rs 675 but in Mumbai trading today, the stock was at Rs 643, implying a discount of about 5 percent.

Traders can play this by buying Ranbaxy futures.

On account on uncertainty on how the final contours of the deal would look like, the discount between Sun and Ranbaxy had widened to about 15 percent as recently as last month. (On November, Sun traded at Rs 850 while Ranbaxy was at 593).

This gap has narrowed and will likely reduce further ahead.

“I don’t know why and why investors were so pessimistic [so as to drive the discount to such levels last month],” Prabhudar Lilladher pharma analyst Surajit Pal told CNBC-TV18 this morning. “The arbitrage opportunity – when people bought Sun Pharma shares instead of Ranbaxy -- was too much. That is narrowing.”

Independently, too, most analysts have been bullish on Sun Pharma and after the deal’s announcement, on Ranbaxy as well, as they repose faith in Sun management’s ability to fix Ranbaxy’s quality issues that have got the company into a tangle with the US FDA.

HSBC has on overweight rating on both stocks.