Sun Pharmaceutical Industries announced that it has received all the requisite approvals for Scheme of Arrangement between Ranbaxy Laboratories (Ranbaxy) into Sun Pharmaceutical Industries (Sun Pharma) which is in the nature of merger of Ranbaxy into Sun Pharma effective from the appointed date i.e. Apr. 1, 2014.
In terms of market share, the combination of Sun Pharma and Ranbaxy creates the fifth-largest specialty generics company in the world (just behind Teva, Sandoz, Activas and Mylan), the largest pharmaceutical company in India with a market share of 9.2% with a sales of USD 1.1 billion, and ahead of Abbott which has a market share of 6.5% (which is huge gap in the highly fragmented Indian market. In terms of asset base, the combined entity will have operations in 65 countries, 47 manufacturing facilities across 5 continents, and a significant platform of specialty and generic products marketed globally, including more than 600 ANDAs.
On the profitability front, the company is estimated to OPM of 31.6%, which is still very healthy, given that Ranbaxy is currently operating at a low OPM. The company is confident of turning around the same, given its history of turning around its acquisitions (Caraco, Taro, DUSA and URL) in the past. Sun Pharma is confident of turning around the acquisition. It expects synergies worth USD 250 million by the third year of acquisition (i.e. mostly by FY2019). However, in the near term, the acquisition will dilute the reported ROE from 27.9% to 27.5% in FY2016, which is healthy, given the low profitability of the acquired company and it would be at the higher end of its peers, which have an ROE of 17-25%. The operating ROE, which excludes the cash component, will still be a higher at around 41%.
Angel Broking said, "We remains neutral on Sun Pharma.''
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