The Hindu Business Line : TTK Healthcare: Reject

Investors can reject the open offer by the promoters of TTK Healthcare. The offer, at Rs 73, is at a marginal discount to the stock's current price of Rs 75, which we estimate is 17-18 times the stock's expected sustainable per-share earnings for FY-07. This is the second such open offer being put through by the promoters in two years.

We had recommended that investors to reject the earlier offer as well.

Prospects

After the rationalisation of operations at its medical devices facility and the exit from the printing business, the company has emerged as an entity that is focussed on its key areas of pharmaceuticals, consumer products and the heart valves division. Moving out of the printing business, which incurred a loss at the PBIT level in FY-06, should provide a leg-up to earnings. Further, with the company considering disposing of its land and printing machinery, one-time gains are likely to accrue to shareholders.

The streamlining of businesses is already reflected in the form of an improvement in operational metrics. For the first quarter of FY-07, sales are up by close to 20 per cent and this has been accompanied by a 60-basis-point improvement in operating margins. Admittedly, margins in absolute terms are not high, but we expect them to trend upwards once the loss-making divisions go out of the equation. The company has also retired a sizeable portion of its loans; a moderation in the interest outgo should boost earnings.

The offer is made by promoters to buy up to a maximum of 16.2-lakh shares at a price of Rs 73. The open offer has been triggered by a preferential allotment made to the promoters, subsequent to which the holdings of the acquirers breached the 60-per cent mark.

The offer, which opened on September 18, closes on October 7. Inga Advisors is the manager to the offer.