Taro Pharmaceutical Industries Ltd. (NYSE:TARO) hardly gets the attention it deserves. The Israel-based generic-pharmaceutical manufacturer supplies in Israel, the U.S., Canada, the U.K., Ireland and in a few other countries. The company was listed on New York Stock Exchange Euronext in March 2012 and is currently one of the best pharmaceutical companies to invest in. In this article, I shall profile this relatively unknown company and discuss why it may be a good idea to observe and focus on this stock.
A little about Taro Pharmaceuticals
Taro Pharmaceutical Industries Ltd. (NYSE:TARO) manufactures hundreds of prescription and OTC drugs. It specializes in dermatological gels, ointments and creams. The popular lidocaine cream, which is a pain-numbing medication, is manufactured by the company too. Indian pharmaceutical giant Sun Pharmaceuticals holds a 67% stake in Taro Pharmaceutical Industries Ltd. (NYSE:TARO) and recently, Sun’s managing director, Dilip Shanghvi, was chosen as the chairman of Taro.
Parent-company Sun, which purchased a majority stake in early 2011, made two bids to acquire more shares at a lesser price. Both times, the merger/acquisition agreements were cancelled because Taro Pharmaceutical Industries Ltd. (NYSE:TARO) shareholders did not like the idea of Sun buying Taro shares for almost half of the current market value. Taro Pharmaceutical Industries Ltd. (NYSE:TARO) currently trades at $63 and Sun had offered $24.50 and $39.50, consecutively.
Generic-drug market makes Taro lucrative
The generic-drug market is lucrative and companies like Taro will find more interest in emerging economies like India, Africa, and Latin America. This is precisely because generic drugs are several times cheaper than drugs marketed by big pharmas. Moreover, Taro’s parent company, Sun Pharmaceuticals, is the third-largest Indian pharma company. This clearly indicates that Taro’s 200+ drugs, ointments, creams and lotions will find a huge market in India, which has a population of more than 1 billion. Indian doctors have usually favored prescribing generic drugs over branded ones because most Indians cannot afford expensive medications.
With a market cap of almost $3 billion and an enterprise value of $2 billion, Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is not a small company. It has a very high profit margin at almost 40% and an operating margin of 54%. With revenue of $671 million reported in the last quarter, Taro certainly stands on its own, even when it can continue to rely on its larger parent company, Sun Pharma. The company has total cash of $553 million and debt of $30 million, which is not too much. I see this company growing further afield and enter emerging markets in India, Africa and elsewhere.