Sun Pharma and Ranbaxy together generated gross revenues of Rs 27,800

crore. Half of this is came from the US market against 60 per cent for Sun
Pharma in the same period, which means it diversifies its revenue mix
geographically with a significant chunk now coming from other emerging
markets.
Sun Pharma said the deal would significantly expand its R&D capabilities
and global presence, especially across emerging markets; enhance
product portfolio and market depth in India, US as well as other markets;
improve strategic flexibility and ability to pursue partnerships and
strengthen M&A bandwidth.
The combine will have operations in 65 countries, 47 manufacturing
facilities across five continents and a swathe of specialty and generics
products including 629 ANDAs (Abbreviated new drug applications). It will
also become the largest Indian pharma company in USA with over $ 2
billion sales and a pipeline of 184 ANDAs.
The combined entitys revenues are estimated at US $ 4.2 billion with
operating profit of US $ 1.2 billion for calendar 2013.
He said both companies would use their current infrastructure to sell each
others products. The synergy benefits from the transaction will be around
$ 250 million three years after its completion. "A large part of this will be
derived from growth, procurement and supply chain efficiencies
The markets to immediate leverage are India, USA and then the emerging
markets. Sun has sales of more than $ 100 million in South Africa, Russia
and Romania and is looking to further strengthen our position in Brazil and
Malaysia, Mr. Shanghvi said.
The merger will see Sun Pharmas revenue jump by a healthy 40% but its
operating profit will rise by a meagre 7.5%, based on pro forma 2013
financials. Its operating profit margin will decline from 44.1% to 29.2%.
Thus, the merger will have a negative effect on its performance in the
near term. Pro forma financial statements are designed to reflect a
proposed change, such as an acquisition, or to emphasize some figures
when a company issues an earnings announcement to the public.
In terms of size, Sun Pharma will now have a pro forma 2013 revenue
of Rs.25,911 crore and an operating profit ofRs.7,577 crore, with a net
profit of Rs.1,710 crore. Ranbaxys profits have been hit by provisions
related to inventory write-offs and foreign exchange-related provisions.
Sun Pharma has said it expects to get $250 million, or Rs.1,550 crore, in
merger-related synergies by the third year after the acquisition is
completed. That is fairly significant and these savings should be from
sales growth, procurement and supply chain efficiencies. But this merger
is not really about scale and its benefits.

In the Indian market, the combined entitys portfolio becomes much larger,
covering more therapeutic areas. The challenge is that Ranbaxys margins
have been relatively lower and that is unlikely to satisfy Sun Pharma. The
company management has said they will work on improving its margins.
Synergies could realize over two to three years
SUNP acquires RBXY for USD4b, diversifies India business, strengthens
position in emerging markets, deal valued at 2.2x sales.
SUNP expects the acquisition to be cash EPS accretive in the first year
and realize USD250m of operating synergies by third year post close.
We believe SUNP can manage RBXYs assets better; however,
synergies could take two to three years to realize. Cultural integration,
the biggest challenge for SUNP.