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Should I buy Sun Pharma?

Be careful as current Taro financials are provisional and un-audited

Now that Sun Pharma has increased its stake in Taro to 65 per cent, how will it change the performance of the company? Is there a case for buying the scrip?
-Dinesh Shankar

Sun Pharma increased its stake in Taro from the earlier 53.2 per cent to 65 per cent by buying out Templeton’s stake. The company paid Templeton US $16 per share (14 per cent premium to Taro’s last closing price) for a total outflow of ~US $82 million. We view the news as positive for Sun Pharma, indicating and re-affirming Taro’s growth prospects in Sun’s overall US strategy. This also helps Sun Pharma increase its voting rights to above the crucial 75 per cent, thereby exercising full management control. We believe this move could also indicate Sun’s willingness to consolidate and increase its overall stake in Taro.

The current price paid is significantly higher than the price paid in the open tender offer of US $7.75 per share. Sun Pharma has now invested ~US $240 million for its 65 per cent stake in the company. The financial impact of this investment will be minimal in FY11/12, as the loss in other income gets offset by lower minority outflow. However, we expect this move to generate positive returns for Sun as Taro begins to ramp up its overall filings and improve profitability. But be careful when investing because current Taro financials are provisional and unaudited and face a risk of change, post full audit.

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