Hi

@Vivek_6954

I came across below news

Aurobindo Pharma to raise $250-300 mn through QIP, equity dilution of 3-5%
As per the media flash, Aurobindo is likely to launch QIP Issue and is looking to raise $250-300 mn (Rs1650-1950 crore).
The promoter’s stake in company is likely to remain above 50%. Total equity dilution to be around 3-5%.

Would like to know your views on the same. (Wont the market take this negatively)

I have entered about a month ago in Aurobindo (seeing thier pipeline of Drug Approvals)
although right now very small position.

Regards,
Kapil Gupta

Hi

1. I agree Valuation is a bit stiff at this price and I wish I had met the mgt few months ago.
2. Mgt did explain that synthetic colours will take a long time to be replaced by natural colours due to several reasons (naturlas have less variety in shades, they are expensive, it is just the propoganda that several countries have made naturlas food colour obligatory, it is like govt. making organic food in all the restaurant mandatory
   1. Regarding customers: If you are getting same quality stuff at a substantially cheap rate from a branded player who is positioned second in the industry, would you buy? that is how Mr. Manke explained.

1. As you can see from Sensient's website, they are now focusing on Naturals market. Due to high entry barriers (explained in note) and small market size, there are only four major players globally. Sensient with its deep pocket can buyout Vidhi (that question is covered in the note).
2. In past few years Vidhi and Roha has gradually taken up a decent market share. How they did it? They are able to produce 30% cheaper than Sensient and they have established a brand as 2nd/3rd largest player in the industry.
3. As explained by the MD, Mr. Manek, India had a poor reputation globally until a few years ago i.e. nobody believed we could be able to manufacture high quality colours. In last decade the scenario has changed substantially and Vidhi and Roha both have taken a huge market share from Sensient.

Now how will Sensient give a comeback or are they even interested in a comeback? Is synthetic colour market too small and insignificant for them? Will they acquire Vidhi and Roha? Story yet to be unfolded

Questions from my side

1. Vidhi says it is the lowest cost producer (probably because it is in India). What stops other players, especially Sensient to produce from India

2. Company says it wants to target 500 crores and 8400 MTPA by 2020. Since u mentioned Industry is growing at 5% only, this good growth can come only at the expense of taking market share away from leader. Do you think market leader would give away such a huge pie (almost 30% of its share) just because it is not producing in India.

3. Why is there such a huge gap between Sensient and Roha. Is Sensient's product and management so superior to command double the size to next competitor. If it is, how come it is not addressing question asked in Point 2

@srnarayan

Only if the acquisition is overseas, dollar strengthening will affect MPS....if it's a major domestic acquisition then it might not have major impact.....

Apart from MPS, I find Syngene story to be very compelling.....discl- have been accumulating and have good exposure in both MPS and Syngene.

Rgds.