Pharmaceuticals: Treading with aplomb
M&A activity gained further momentum in Q4FY06 with two large deals – Watson/Andrx and Dr.Reddy’s/betapharm. Besides, potential out-of-court settlementdeals are also gathering momentum. Notably, the aggregate PAT of i-SECpharma universe would strongly bounce back to 39% YoY in FY07E versus 9% inFY06, which was marred due to the negative impact of VAT, MRP-based excise,severe pricing pressure in the US and spiraling costs. We expect i-SEC pharmauniverse’s aggregate PAT in Q4FY06 to leap 58% to Rs6.28bn due to strongrevenue growth, tighter cost control and low base effect of VAT. We reiterate ourinvestment strategy of ‘pick & choose’ based on greater earnings predictabilityand better visibility of news flow.
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