Recommendation: Buy
CMP = Rs 439
Price target: Rs 500
Key points
· Ranbaxy Laboratories (Ranbaxy) is increasing its stake in Zenotech Laboratories (Zenotech) from 7% currently to 45% at a price of Rs 160 per share, resulting into a total investment of Rs 214 crore. The above increase in stake in Zenotech to 45% will trigger a mandatory open offer by Ranbaxy to other shareholders of Zenotech, at a price of Rs 160 per share or as determined by the Securities and Exchange Board of India (SEBI) regulation.
· Zenotech is a Hyderabad-based research driven pharmaceutical company that develops new biological entities in the areas of cancer and neurology. The company currently has a portfolio of ten oncology injectables and five anesthesiology injectables developed and marketed in
· By increasing its stake in Zenotech, Ranbaxy is preparing to capitalise the huge opportunity that awaits pharmaceutical companies in the field of biologics and oncology. The opening up of biosimilars or biogenerics in the regulated markets of the
· As per media reports, Ranbaxy is in advanced stages of negotiation with numerous private equity players to hive off its new chemical entity (NCE) research division into a separate entity by 2008. Ranbaxy's current pipeline consists of two molecules in the clinics and another six-seven molecules in the pre-clinical stages. The demerger of the NCE division will unlock value for investors, generate new funding options for discovery research and de-risk the company's main generic business.
· I maintain positive outlook on Ranbaxy and feel that it is among the best placed companies to leverage the global generic opportunity with its extremely diversified business model and a large product portfolio.
· At the current market price of Rs 439, Ranbaxy is trading at 23.7x its estimated CY2007 and 24.8x its estimated CY2008 earnings. I maintain Buy recommendation on the stock with a revised price target of Rs 500.
