Multi Baggers

Fulford (India)

About the company

Fulford (India) Limited is engaged in the pharmaceutical business. The Company operates in the therapeutic areas, such as dermatology, rheumatology, anti-histamine etc. The Company's product portfolio provides therapies for acute and chronic health conditions. The Company is the subsidiary of Merck & Co. It operates in various therapeutic areas in human health, including metabolics, cardiovascular, vaccines, critical care, immunology, virology, oncology, women's health, dermatology, respiratory, musculoskeletal and primary care.

Important Triggers:

There is a global transition in the pharmaceutical space and large players will be looking to consolidate the business and interestingly on Feb 25 2013 17.95 percent were acquired by Merck Subsidiary Dashtag in FulFord India.

The company market cap is currently at 270 odd crores vs Sales of 200 crores and is available at a Market Cap to Sales of 1.3 times. Annualized equivalent value paid by Merck, Astrazen, Pfizer for their subsidiaries is anywhere between 10-13 percent vs AEV of 17.8 percent for Fulford. This means parent is buying companies in the globe at a premium higher than its subsidiaries are trading this will be an arbitrage that we feel will trigger open offer of Rs 1000-1200 per share. However this will take time depending on when parent decides to offer the shares however if we go by simple mathematics of  AEV that we have been successful for Alfa Laval Atlas Copco and many more we feel there is going to be a lot of value that  Fulford parent will create for minority share holders.

In the past too, Merck via Dashtag has acquired the stock at decent valuations and even in future there is a likely possibility of Management doing the same. 

Fundamental Perspective:

Merck is doing strategic deals with other players as they have started focusing on consolidating their position especially after the PFIZER and Wyeth Re-organization. It's upon management to take the call when they will consolidate their subsidiaries and focus on the consolidating India business but the stock offers lot of value from three years perspective.

We expect the stock to clock EPS of over 45 which translates into PE of just 16 times. In 2008 company used to do EPS of over 50 but then few products wreck the business profitability now company is returning in green with product profile and pat growth. This looks very lucrative investment bet at current levels.

Here is a company which is available at a valuation almost four-tenth of discount what parent is paying to acquire others business. (Merck Recent deals have been in the range of 12 percent AEV factor) comparable to this the stock is available at very decent price thus limiting downside risk.

What if Management does not go for open offer?

The stock with CEPS of 45+ in a year's time and available at 16 times forward from the house of DASHTAG (Merck) will definitely be noticed by large players and fund house. Thus lot of value in the stock at current levels even if the parent do not look for delisting we expect the stock to stabilize around 900 @ 20 Pe to 1035 @23  PE on conservative side. In 2008 the EPS of company was 50 and now Large Pharma investorss are hungry for such companies they are ready to pay 2 3 times annualized sales. Quality of management backed by improving numbers we feel there is ample scope for the stock to get re-rated at current levels.