Stock Idea - Cadila Healthcare

Recommendation: Buy

CMP = Rs 314 (at the time of this recommendation)

Price target: Rs 372

Key points:

• Cadila Healthcare (Cadila) has decided to hive-off its consumer product business and merge the same with its listed subsidiary, Carnation Nutra Analogue. In consideration, Carnation Nutra will allot to shareholders of Cadila four fully-paid-up equity shares of Rs 10 each for 15 equity shares of Rs 5 each held in Cadila. Consequently, Cadila's stake in Carnation Nutra would increase from 61.56% currently to 70.2% post the restructuring.
• Cadila would also amalgamate Zydus Hospital and Medical Research Private Ltd with itself by canceling the existing nine crore shares held by Zydus Hospital in Cadila and issuing 10.08 crore fresh equity shares to Zydus Hospital. The move would result in equity dilution of 8.7% in Cadila and add no value for the minority shareholders. The restructuring is intended to consolidate the group's consumer product business under one entity and aims to unlock value in its consumer product business. 
• In consideration for the consumer product business, Cadila shareholders would get additional shares of Carnation Nutra (4:15 – 4 shares of Carnation Nutra for every 15 shares of Cadila). I would value Carnation Nutra stock at Rs 87 per share.
• I maintain Buy call with a price target of Rs 372.