>ABBOTT INDIA: Consolidation of Solvay Pharma India Ltd. (SPIL) with the company

M&A, strategic alliance gives a headstart
Abbott India (AIL), a 50.44% subsidiary of Abbott Capital India Ltd., UK, is involved in the manufacture and marketing of pharmaceutical, diagnostic, nutritional and hospital products. Consolidation of Solvay Pharma India Ltd. (SPIL) with the company is expected to improve operating efficiencies, leading to expansion of EBITDA margin and an extended product portfolio with addition of brands from SPIL. We expect the company to post a 24% CAGR top-line over CY2010-13E on the back of continued focus on advertising, increased employee expenses, new therapeutic segments and its agreement with Zydus Cadila. At the current price of `1,434, the stock is trading at 13.9x CY2013E EPS, which we believe is attractive for an MNC. We Initiate Coverage on AIL with a Buy rating and a target price of `1,852.


■ Synergies with SPIL to improve the business model: Amalgamation of SPIL with AIL expanded the company’s product portfolio, giving access to untapped therapeutic segments, in addition to increasing exposure to its existing therapeutic segments. Besides increased revenue, the synergy between the two companies is expected to improve operating efficiencies, thus leading to margin expansion.


■ Multiple revenue drivers to facilitate 24% CAGR top-line growth: AIL’s expenditure on advertisement and employee as a percent of sales has been continuously increasing since CY2006. Continued focus on these factors is expected to drive revenues going forward. Moreover, AIL’s focus on therapeutic areas such as diagnostics and nutrition; and its agreement with Zydus Cadila (India) to market 25 products in emerging markets from CY2013E could further add to revenues. Debt-free, cash-rich with higher returns: We expect AIL’s cash reserves and RoIC to increase to `594cr and 114.3%, respectively, by CY2013E, aided by additional cash from SPIL, which was also a cash-rich company. Due to excess cash in the books, we believe it may be a potential delisting candidate.


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