GSK PLC to spend Rs. 6400cr to enhance its share in GSK Pharmaceutical to 75% - Angel Broking

Views of Ms. Sarabjit Kour Nangra (VP-Research, Pharma, Angel Broking)

"London-listed GlaxoSmithKline (GSK) announced that it is going to increase stake in its Indian pharmaceutical subsidiary GlaxoSmithKline Pharmaceuticals (GSK Pharma) through a voluntary open offer.GSK, which holds 50.7% stake, wants to raise up to 75% at a price of Rs. 3,100/share. GSK intends to keep the company publicly-listed. According to SEBI Indian company requires a minimum public shareholding of 25% for a company to maintain a public listing in the country. GSK intends to acquire up to 2,06,09,774 shares, representing 24.3% of the total outstanding shares of the GSK Pharma. The offer represents a premium of approximately 26 % to the company's closing share price on December 13, 2013. The potential total value of the transaction at the offer price is approximately Rs. 6,400cr.

The buy back of the shares is at an attractive prices, much above the current market price and is a strong indicator from the Managements side towards the listed entity and especially coming after the comes after the recent Rs. 864cr investment plan announced by the company to further its growth prospects in the Indian pharmaceutical markets. The said investments are expected to fructify by the 2017. On valuation front, on a normalized basis ( normalized for the impact of the current DPCO 2013 on its operations), the stock at the buyback price would trade at around 34xCY2014 earnings. Thus, the stock would move on the way up on the buyback, the long term shareholders are advised to remain put in the stock , as in the long run when these facilities become operational ( from 2017), the current shareholders can easy make a 20%p.a on the stock. However, the shareholders, looking from a very near term perspective should renter the shares, as the valuation sin near term, at the buy-back price is very attractive."

Source : Equity Bulls

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