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News Updates | Cipla defers Medpro buyout




IndiaNivesh Securities Pvt Ltd


11 Feb 2013





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Cipla defers Medpro buyout: According to media reports, Cipla has decided to defer 51% stake acquisition of Cipla Medpro South Africa, proposed in November 2012. According to given proposal, Cipla was likely to take controlling stake (~51%) in Cipla Medpro South Africa (CMSA) at offered price of ZAR 8.55 per share, valuing CMSA at $430 million, which was at 20% premium of prevailing market price. Our Take: At offered price (ZAR 8.55 per share) Cipla valued CMSA at P/sales = 1.95x of CY11 & P/E =20x of CY11 adjusted earnings, which was fair in our view. Currently deferring the acquisition has been mainly due to higher valuation demanded by minority share holders. This will be a setback for Cipla due to company’s strategic fit in South Africa. But we appreciate wise move of Cipla for not increasing the offer price mainly due to two reasons A) Cipla is almost inexperienced in acquisitions & bringing out synergy from that. Hence, acquisition at high price would not have been a wise decision for the company. B) In our view, 2x of Sales was fair offer, any price above that would not be justifiable given business model & operating performance of the company. Additionally, we would like to highlight the fact that in Q3FY13 conference calls also management indicated to acquire certain front ended strategically fit targets & denied to acquire CMSA at higher valuations. Valuations: At CMP of Rs 391, the stock is trading at P/E multiple of 20.8x of FY13E & 19.9x of FY14E earnings estimates. We maintain BUY on the stock with the target price of Rs 440.

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