Investment Rationale
➢➢MIL, 51% subsidiary of Merck KGaA – Germany, operates in
Pharmaceutical and Chemical segments.
➢➢Giving more thrust to top-line growth to achieve significant
scale thru deeper penetration with increased field force, selective
new launches from the parent and some line extensions in
pharmaceutical segment.
➢➢Focus on fast growing therapeutic segments such as
cardiologicals and hematinics should enhance their contribution
to 10-12% of sales (~ 8% in CY 2007) going forward. These
segments enjoy good margin as well.
➢➢MIL is setting up bulk chemical (Oxynex) plant at Goa @ capex
Rs. 27-30 crore in CY 2008, which will enhance Oxynex ST
capacity to 150 TPA (22 TPA). This 100% EOU expected to
commence production in Sep–Oct 2008, would generate
revenues of ~ Rs 22-25 crore at full capacity by CY 2009 with
gross margin of 20%.
➢➢It is debt free company with surplus cash of ~ Rs 350 crore (i.e.
Rs 206/- per share) as on Dec. 31, 2007, offering greater
opportunities to acquire good businesses / brands.
➢➢Thus, MIL is expected to grow topline @ 15% (+). Once, topline
will grow, profitability is also expected to improve going ahead.
Investment Concerns
➢➢58 % of turnover (i.e. vitamins) is under DPCO.
➢➢Existence of parent's 100% subsidiary, Merck Specialities in
India, could to some extent, pare interest of the listed entity.
Recommendation
➢➢Investor friendly company with track record of high dividend
payout. At CMP, dividend yield works out to be ~ 5.7%.
➢➢At CMP, the share (Rs. 10/- paid up) is trading at 8.6 times CY
2007 actual EPS of Rs. 40.8 and 8 times CY 2008 expected EPS
of Rs. 44.09. Considering aggressive growth plans, we
recommend to "BUY" the share at CMP.
