Glaxo Flares Up On Merger Moves

Even in the worst of times, pharma scrips have managed to give decent returns on investment, making them a safe and sound bet for portfolio managers. The recent announcement of merger talks between Glaxo Welcome and SmithKline Beecham Pharma has given strong signal to the investment community.

Taking cue from the possible benefits accruing out of the possible merger, the stock prices of Glaxo flared up during last weeks trading.

The merged entity will definitely have a strong presence in the Indian market. Even if one goes by the current market share, the merged entity should nearly have a market share close to nine per cent.

 

This is unusually large considering that even the top 10 pharma companies have less than five per cent market share," said Rakesh Parekh, pharma analyst with Caspian Equity Research.

Last week, the stock price of Glaxo made substantial gains at both the bourses.

The upward movement was also accompanied by a surge in volumes.

At the National Stock Exchange (NSE), the scrip closed at Rs 358.75 over previous Friday's close of Rs 344. Later in the week, the scrip continued to scale new heights. It closed at Rs 385.65 on Tuesday, though some of the gains made in the early part of the week was eroded on profit-taking.

By Thursday, the sudden demand for the scrip dried down, and it closed at Rs 358.35 as against the previous close of Rs 369.20 on the NSE.

On the Bombay Stock Exchange (BSE), the scrip opened at Rs 371 over its previous close of Rs 365.

The stock touched a high of Rs 376 and later dipped to a low of Rs 353 on profit-booking. It finally closed at Rs 356, a loss of Rs 9 from its previous close.

Market players feel it is too early to talk about the merger as it may take more than a year before the two companies can join. According to analysts, the global trend in pharma industry is changing with more and more companies moving away from chemicals and getting more into genetic engineering and bio-technology.

The companies look for consolidation because of the huge costs involved in setting up labs to develop products," said one analyst.

Thus, the benefits of merger will surely will go to Glaxo but the recent rise in stock prices is more speculative in nature.

The current price rise is more speculative in nature because it will take nearly a year before the merger will actually materialise. The market has reacted to the news anticipating that Glaxo will benefit out of the merger in the long run, said another analyst.

Glaxo already has a strong marketing network, and is among the leaders in the pharma business in the country. On the other hand, SmithKline Beecham Pharma is a market leader in the antiseptic range. Thus, the fusion of the two will have a great impact on the bottomline of the merged entity.