Sensex Opens Flat; Aurobindo Pharma Up 2.3% on Acquisition

Mon, 9 Jan 09:30 am

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Asian markets are mixed today. The Nikkei 225 is off 0.34% while the Hang Seng is up 0.05%. The Shanghai Composite is trading up by 0.55%. Stock markets in the US and Europe ended their previous session on a positive note.

Meanwhile, Indian share markets have opened the trading day flat with a positive bias. The BSE Sensex is trading higher by 33 points while the is trading higher by 11 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.3%. The rupee is trading at 67.95 to the US$. Barring IT stocks and power stocks, all sectoral indices have opened the day in green with metal, banking and capital good stocks witnessing maximum buying interest.

According to an article in The Economic Times, the tyre industry in India anticipate subdued growth in the first half of 2017 due to the continuous rally in natural rubber prices.

Reportedly, the prices have peaked to a four-month high of Rs 139 per kg and can dampen tyre manufacturers' business as rubber is the basic raw material for most of them. The rubber prices have risen in tandem with the crude oil prices and may drag down the earnings of the tyre stocks (Subscription Required) in the near term.

Indian rubber prices generally track international prices and the market invariably adjusts to international prices often with a time lag. Prices in India had been ruling above the international prices since December 2013. But the situation changed in the middle of last month. Though it is the peak harvest season, tapping has been partially affected by demonetisation and insufficient northeast monsoon.

However, the demand in China is going up. This may reduce the import as the international costs are much higher than the domestic costs. The international price is at Rs 159 per kg, above Rs 20 per kg in the domestic market, making imports unviable. Imports of natural rubber touched a record 458,374 tonnes in FY 2015-16.

India's Rubber Production & Imports Over the Years

This will increase domestic demand and thereby increase the prices. Moreover, the output of the largest producer, Thailand, has fallen, which may also help increase the export demand. Rubber production in the country rose by 12% in last 8 months ending November and stands at 4.3 lakh tonnes. The price is likely to increase to Rs 150 in the near term, the reports noted.

Moving on to the news from stocks in pharma sector. According to an article in the leading financial daily, Aurobindo Pharma Ltd has agreed to acquire Portugal-based pharmaceutical product and supplier Generis Farmaceutica SA from private equity firm Magnum Capital Partners for Rs 9.7 billion in an all cash deal. Aurobindo Pharma will acquire Generis through its wholly-owned subsidiary Agile Pharma BV Netherlands.

The acquisition includes the manufacturing facility in Amadora, Portugal, which has the capacity to manufacture 1.2 billion tablets annually. After the acquisition, the Aurobindo group will be the largest in the generic pharmaceutical market in Portugal with a portfolio of 271 generic products.

According to Aurobindo's estimates, net sales for the acquired business will be approximately 72 million euros in 2017, compared to 64.8 million euros in 2016. One shall note that Aurobindo Pharma has been steadily expanding its European footprint since 2006, via acquisitions across several key markets.

As the M&A activity has been heating up globally, the M&A activity in the Indian pharma space has been on the rise in recent times. Rahul Shah has penned an interesting piece in one of the editions of The 5 Minute WrapUp on how generic pharma companies are benefitting from global M&A activity. Here's an excerpt from the article:

• "M&A activity among the innovators provides an opportunity for the generics to build a product portfolio by buying the product basket. For small to midsized companies, this is perhaps the quickest way to expand.
  
  Given the high costs and even higher risks in developing a drug, the innovator companies have increasingly turned towards investing resources in the acquisition of existing drugs or promising ones already in the pipeline."

Aurobindo pharma's share price opened the day up by 2.3%

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