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Abbott–Knoll merger: The Indian synopsis - Views on News from Equitymaster
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  • Dec 18, 2000

    Abbott–Knoll merger: The Indian synopsis

    Abbott Inc announced the takeover of Knoll Pharma, the pharmaceutical arm of the German conglomerate BASF on Saturday. We take a look at the operations of both these companies in India.

    Knoll is a leading player in the Indian insulin, pain control and antacid market with brands such as Brufen (anti–rheumatic), Digene (antacid), Epilex (anti–epilepsy) and Cremmafin (laxative). The company dominated the anti–diabetes segment with a market share of more than 70%. This segment contributed almost 40% to the company’s turnover last year.

    Abbott India, on the other hand, is active in the areas of anti–infectives, dermatological (skin infection), anti–diarrhoeal and gastro–intestinal apart from a portfolio of hospital products and nutritional products. The company introduced its Hytrin (its brand for hypertension) in India a couple of years ago. This product has already captured over 55% market share and has been growing at over 50% over the last two years. The company’s Claribid (used in cases of upper respiratory tract infection) also has been growing at over 40% and enjoys a 35% market share.

        Knoll Pharma Abbott
        FY00 FY01E FY02E FY00 FY01E FY02E
    Price Rs 390     277    
    Sales Rs m 2,910 3,201 3,521 967 1,064 1,212
    PAT Rs m 668 438 491 18 60 75
    GPM % 14% 16% 16% 8% 11% 11%
    NPM % 23% 14% 14% 2% 6% 6%
    EPS Rs 41.2 27.1 30.3 3.4 11.5 14.4
    CEPS Rs 44.4 30.5 33.8 4.8 13.0 16.2
    DPS Rs 40.0 10.0 12.0 2.8 3.5 5.0
    Div. Yield % 10.3% 2.6% 3.1% 1.0% 1.3% 1.8%
    P/e x 9.5 14.4 12.9 82.6 24.1 19.3
    P/CEPS x 8.8 12.8 11.5 58.1 21.3 17.1
    Market Cap Rs bn     6.3     1.4
    Mcap/Sales x 2.17 1.97 1.79 1.50 1.36 1.19
    P/BV x 5.3 4.4 3.8 4.1 3.6 3.2
    PEG       (0.90)     0.18

    Both Abbott and Knoll have been restructuring their operations in India over the last three years. While Abbott closed its Kurla plant, Knoll closed its Sion plant. Both the companies have also had to face the brunt of the price reductions for their well–established products such as Brufen (for Knoll) and Surbex–T (Abbott) which are under price control.

    Both the companies also have plans to introduce a host of new products from their parent’s stable over the next three years. Knoll however, had another vehicle for introducing its products into India viz. its parent’s wholly owned subsidiary. Whether, Abbott, which so far did not have a 100% subsidiary, will inherit this, remains to be seen.

    If that were to happen it would certainly be a negative for the shareholders of Abbott, though it would not be the first instance of its kind. Abbott India currently quotes at Rs 277, implying an earnings multiple of around 24 times FY01 earnings, while Knoll quotes at Rs 390, implying an earnings multiple of 15 times FY01 earnings.



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