Investing In Value And Multibagger Stocks

Merck India Limited - A Good dividend stock pick

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.

This post was written by: Franklin Manuel

Franklin Manuel is a professional blogger, web designer and front end web developer. Follow him on Twitter