Sun Pharma-Ranbaxy merger may put pressure on Ebitda margins of merged entity: Daljeet Singh Kohli

In a chat with ET Now, Daljeet Singh Kohli, Head of Research, IndiaNivesh, shares his view on Sun Pharma-Ranbaxy merger.



ET Now: How you look at High Court's approval? What is the call on Sun PHarma and Ranbaxy?

Daljeet Singh Kohli: High Court's approval on merger was a regulatory requirement.

The CCI had cleared the hurdle with minor changes. The company will have to shut down six to seven brands. The merged entity will have sell out brands, which account only for 1 per cent of Sun Pharma’s total revenue.

It is a matter of time when the merger will take place. How Sun Pharma integrates its business will be keenly watched out. Investors would be looking at how the merged entity will derive synergistic benefits.

Of course, Sun Pharma has said that it will take a longer period of 18 to 24 months.

As of today, we do not have a call on Ranbaxy. For Sun Pharma, we have a 'hold' rating because we are concerned about valuations.

We think that the stock is overpriced. Though the company is showing good numbers, the stock is overpriced. We feel Sun Pharma’s EBITDA margins will be depressed in the initial 18 to 24 months, till the time all that synergies come in from Ranbaxy.

It is because of the fact that Ranbaxy’s margins are much lower than Sun Pharma’s. It may actually be good in the longer term, but in the short term, there will be pain for Sun Pharma.