Welspun Gujarat Stahl Rohren
Cluster: Emerging Star
Recommendation: Book Profit
Current market price: Rs92
Book profit
We had recommended a Buy on Welspun Gujarat Stahl Rohren on April 1, 2004 at a price of Rs31.7 per share and set a revised price target of Rs84. Since then the stock has appreciated by 190% and well surpassed our price target. We recommend investors to book profit in the same.
Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs384
Be-Tabs to be earnings accretive
Key points
- Ranbaxy Laboratories Limited (Ranbaxy) has acquired a 100% stake in Be-Tabs Pharmaceuticals Limited (Be-Tabs) of South Africa, for a total consideration of $70 million (500 million ZAR).
- Be-Tabs is the fifth largest generic company in South Africa. It is the largest manufacturer of penicillin formulations and markets and manufactures a portfolio of ethical and over-the-counter (OTC) solid-oral and liquid formulations in South Africa. Be-Tabs has annual sales of approximately $30 million, with earnings before interest, tax, depreciation and amortisation (EBITDA) margin of about 13%.
- The acquisition of Be-tabs will complement Ranbaxy's existing business in South Africa. Ranbaxy currently derives $20-25 million of revenues from South Africa. The acquisition of Be-tabs will double Ranbaxy's South African business. With a combined turnover of $50-55 million, Ranbaxy will now enjoy a market share of 1.6% in South Africa.
- At $70 million, the deal is valued at 2.2x sales and 7.7x EBIDTA. Even though the deal appears cheap when compared to other acquisitions, the price seems fair when viewed in light of the relatively lower EBIDTA margin and growth rate of Be-Tabs.
- Based on the back-of-the-envelope calculations, we believe that Be-Tabs would add $2.4 million (approximately Rs11 crore) to Ranbaxy's bottom line in CY2007E. Due to Ranbaxy's large equity base, we believe that the impact on the earnings per share would be marginal.
- At the current market price of Rs384, Ranbaxy is quoting at 20.8x its CY2007E estimated earnings, on a fully diluted basis. We maintain our Buy recommendation on Ranbaxy with a price target of Rs558.
SECTOR UPDATE
Automobiles
Tata Motors has reported better-than-expected sales for November 2006. Its vehicle sales for the month have grown by 43.1% to 49,061 units.
Download here