Sun Pharmaceutical
Industries
Taro Tender Offer Suggests
Inexpensive Valuations?
Quick Comment: Taro (US$4bn market cap, 65.9%
owned by Sun) announced that it has commenced
repurchase of its ordinary shares (up to US$200mn) at a
price not greater than US$97.5 per share nor less than
US$84.5 per share. At these prices, if the offer is fully
subscribed, the number of shares to be purchased
represents approximately 4.6-5.3% of Taro’s currently
issued shares. The offer will expire at midnight (EST) on
December 23, 2013.
Rationale: Taro had approximately US$741mn in cash
as of October 31, 2013. The company said it aims to
return part of this cash to shareholders through this
tender offer and retain the balance for future use. The
annualized F2Q14 results (US$96mn net profit), which
may be sustainable if competition intensifies, implies
9.5-11x P/E multiples (at extreme end of offer pricing).
Taro stock is up 96% YTD and significantly vs. Sun’s
acquisition value (roughly US$260m for 66% stake three
to four years ago).
Implication: Taro’s tender offer at the current stock
price suggests management’s assessment for greater
value in the stock. Alternatively, the decision may be
driven by the low fixed-income yield on the surplus cash.
It would be interesting to note Sun’s reaction to this offer
(i.e., whether it participates or not). If it participates, then
we believe that will lead to a transfer of excess cash
from Taro to Sun. Both companies are generating strong
cash flow.
Investment thesis: We expect strong growth trajectory
for Sun in the quarters ahead driven by its solid base
business, value unlocking in URL/DUSA and greater
market share in Doxil. Surplus cash on the balance
sheet should add an M&A premium to the stock. We
retain our OW rating on the stock and it is part of our
Asia Best Ideas list.
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Industries
Taro Tender Offer Suggests
Inexpensive Valuations?
Quick Comment: Taro (US$4bn market cap, 65.9%
owned by Sun) announced that it has commenced
repurchase of its ordinary shares (up to US$200mn) at a
price not greater than US$97.5 per share nor less than
US$84.5 per share. At these prices, if the offer is fully
subscribed, the number of shares to be purchased
represents approximately 4.6-5.3% of Taro’s currently
issued shares. The offer will expire at midnight (EST) on
December 23, 2013.
Rationale: Taro had approximately US$741mn in cash
as of October 31, 2013. The company said it aims to
return part of this cash to shareholders through this
tender offer and retain the balance for future use. The
annualized F2Q14 results (US$96mn net profit), which
may be sustainable if competition intensifies, implies
9.5-11x P/E multiples (at extreme end of offer pricing).
Taro stock is up 96% YTD and significantly vs. Sun’s
acquisition value (roughly US$260m for 66% stake three
to four years ago).
Implication: Taro’s tender offer at the current stock
price suggests management’s assessment for greater
value in the stock. Alternatively, the decision may be
driven by the low fixed-income yield on the surplus cash.
It would be interesting to note Sun’s reaction to this offer
(i.e., whether it participates or not). If it participates, then
we believe that will lead to a transfer of excess cash
from Taro to Sun. Both companies are generating strong
cash flow.
Investment thesis: We expect strong growth trajectory
for Sun in the quarters ahead driven by its solid base
business, value unlocking in URL/DUSA and greater
market share in Doxil. Surplus cash on the balance
sheet should add an M&A premium to the stock. We
retain our OW rating on the stock and it is part of our
Asia Best Ideas list.
keep it up sir........we eigerly waiting your reports............ jugal
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