Her Merck – A good prescription for safety and good returns

Merck Ltd, (previously E Merck) a well known MNC Pharma company, is a major player in the Vitamin E segment. It markets three renowned brands, Polybion, Neurobion and Evion in this segment. Its other major brands include Livogen, Nasivion, Concor and Vent. The company’s manufacturing facility is located at Ponda, Goa which caters to 30% of pharma requirements whereas 70% products are outsourced. The company derives around 8% of its revenues from exports of APIs.

Its parent company, i.e. Merck KGaA, Germany is 300 years old and has presence in over 60 countries. Its recent launch in the anti-anaemia segment in the domestic market provides good future growth potential as the anti-anemic market in India is placed at Rs 365 crore and growing at 13.4%. It remains one of the cheapest Pharma MNCs listed on the Indian stock market. Its debt free status, excellent dividend distribution history, strong balance sheet coupled with good growth in multi-vitamin segment augurs well for the company. Moreover, it has cash and cash equivalents of Rs 334 crore (at the end of CY08) which translates into ~Rs 200 per share. One can also expect some brand acquisition in the domestic market by the company given the cash position it enjoys. In the current market scenario where many stocks appear relatively expensive, this stock provides cheap valuations along with good growth prospective. Dividend Yield of over 3 percent is another strong point for investing in this company. In the near term this stock has the potential of reaching Rs 750. In the long run it is likely to trade in four digit figures.

Moreover being a stock not very well correlated to the index it can generate returns even if the market was to correct in the near term.