Merck - Stable Pharma Major

I have been looking at some Pharma names recently. Let me put a disclaimer upfront. I am not very good at analyzing pharma companies. I am not able to differentiate between most of the companies who sell non-patented generic drugs in India.

Having said that, the numbers for Merck looked good. Below is a glimpse.

Market Cap: Rs. 1050 Cr
Current Price: Rs. 630.00
Book Value: Rs. 291.36
Stock P/E: 13.34
Debt to equity: 0.00
Price to book value: 2.16
Promoter Holding: 51.8%

• Merck Limited was set up in India as Merck’s first Asian subsidiary in 1967. The Company operates both its pharmaceuticals & chemicals businesses in the country.

• Dec'13 (Q4) quarter net profits & EPS have gone up by 58%; Revenues are up 31.8%

• FY12 (year ending Dec) EPS is 47.2 vs 38.4 in Fy11 (Gain of 23%)

Problem Areas

• Large part of the company's revenues comes from areas under govt price control, ability to pass on input cost escalations is not there. This can severely impact margins.
• Company has a performance materials division which makes pigments and cosmetic actives, neither of which is core to the company's business.

Valuation
The company is likely to post a FY13 (Dec) EPS of close to 53-54. At 15 times, the stock can trade at around 800 levels, which is about 25% from current levels. So, not a screaming buy, but something worth looking into for stability and moderate returns over the short term.

Disclosure: I am not invested in Merck at this time. I am not yet decided whether to invest or not. Please do your own due diligence before investing.