pharmaTHMB.jpg GSK Pharma’s Rs.6,400 cr open offer begins Today!

The Britain-based GlaxoSmithKline Plc’s voluntary open offer to the shareholders of its Indian subsidiary GlaxoSmithKline Pharmaceuticals (GSK Pharma) is scheduled to start Tuesday.

The global healthcare major plans to invest Rs.6,390 crore to raise its stake in its Indian subsidiary to 75 percent from the existing 50.67 percent.

GlaxoSmithKline Pte. Ltd. along with GlaxoSmithKline Plc plans to acquire up to 2.06 crore shares of GSK Pharma at Rs.3,100 per share. The open offer begins Feb 18 and will close March 5, 2014.

According to most analysts, the open offer is attractive and investors should take this opportunity to exit.

Mumbai-based Dinker Shanbhag, who heads Institutional Equities at Lotus Global Equities says, “The offer by the parent company for GSK Pharma is attractively priced and investors should take this opportunity and tender their shares.”

“The open offer comes in a time when the company’s performance has shown a downfall on account of new pharmaceutical pricing policy, rising competition, higher input cost and INR depreciation,” he added.

The offer price of Rs.3,100 per share is at a premium of 26 percent to the closing price of GSK Pharma before the offer was announced. The open offer was announced Dec 16, 2013.

According to Karvy Stock Broking, “Considering the open offer is at attractive rate, we believe it would be prudent to exercise the offer route.”

Karvy also downgraded the revenue estimates for 2014 by 14.5 percent to Rs.2,652 crore on account of low base impact and EPS estimates by 24.4 percent to Rs.56.4.

According to research reports, going by the current valuation of GSK Pharma at Rs.3,000 (to be updated on Friday closing price) per share, the price is comparatively higher as against other frontline pharmaceutical companies in India.

In a research note prepared by Daljeet S. Singh, head of research at India Nivesh, following the announcement of the open offer says: “In the last 2-3 years, GSK’s performance has been muted due to increase in competition from domestic players and increasing material and finished goods cost of the company partially linked with rupee depreciation.”

“Additionally, new pharmaceutical pricing policy has further bowed down on the revenue and profitability of its major brands like Augmentin etc,” he said.

Following the announcement, Kotak Institutional Equities has suspended rating on GSK Pharma (SELL previously with target price of Rs.1,820 earlier) given that going forward the stock price will reflect the offer price despite limited fundamental justification.

Analysts are also concerned over the new pharmaceutical policy which could impact GSK Pharma more than any other pharma player in India.

According to Macquarie Capital Securities (India) report unveiled after the open offer announcement, the National Pharmaceutical Pricing Policy impacts GSK the most due to the premium pricing GSK brands enjoy.

Over 28 percent of GSK’s current sales come under National List of Essential Medicines (NELM). Augmentin – one of GSK’s biggest antibiotic brands alone could be impacted by Rs.40 crore. –