Query RESOLVED:: Get health cover at least 4 years before retirement ::Business Line

I am aged 50 and resigned as marketing DGM in June 2011. I plan to start my own market research company, or will start working again. Currently, I am undertaking part-time market research work and earn Rs 20,000 a month. My wife is a yoga teacher and she is earning Rs 5,000 a month. My monthly household expenses are Rs 15,000 and our car loan EMI is Rs 5,000. My annual commitment towards five insurance policies is Rs 25,000. We have a daughter pursuing BSc Computer Science and is in her final year. She wanted to purse higher studies and we are planning for her marriage in 2015 for which I may require about Rs 10 lakh. In June I have taken medical floater policy for Rs 3 lakh.

Assets: Fixed deposits for Rs 4.2 lakh, PF balance is Rs 3 lakh, small savings Rs 3 lakh in PPF and Rs 50,000 in NSC. My total maturity of insurance proceed is Rs 5 lakh and it is maturing between 2014 and 2019. The house I live in Chennai is worth of Rs 25 lakh and I have ancestral property worth Rs 20 lakh.

My queries are: Is it better to start working again or should I try to start a business? Based on my health, my wife and I may live up to 80 years. How do I rearrange my portfolio? I am interested in MFs but only through lump sum and not through SIP.

— Kumaravel

With your current surplus and based on your anticipated longevity, you have no other option than to work or to start a business. The current annual living expense of Rs 1.8 lakh will be Rs 3.3 lakh at 60 years and the same will be Rs 6.6 lakh if the inflation sustains at 7 per cent over the same period. If you wish to meet such expenses from next month, till your life expectancy of 80 years, you should have a corpus of Rs 41 lakh and it should earn an interest of 2 per cent above inflation.

If you wish to start a business, it should not be capital intensive and the break-even time should be very short. If the cycle is higher, your surplus will get exhausted. Given the situation you are in, it appears that working for a few years may be the best option till you build a sufficient surplus to start a business.

With regards to your portfolio, your current investments show that you are risk averse. If you want to construct a portfolio to outpace inflation, you should definitely add equity. To build a portfolio with limited surplus, systematic investment plan in MF is the ideal strategy rather than a one-time investment.

Earmark your life insurance proceeds and small savings to meet the marriage expenses of your daughter.

I am working in a State PSU and retiring next month. Our monthly household expense is Rs 15,000. My retirement benefits are provident fund of Rs 30 lakh, gratuity of Rs 10 lakh. I will receive Rs 7 lakh after-tax as leave salary. My other investments are fixed deposit for Rs 35 lakh, direct equity exposure of Rs 8 lakh and investment in mutual fund for Rs 10 lakh including gold ETF. My life insurance policies will mature in 2012 and I will receive Rs 5 lakh. After retirement, I am eligible for a monthly pension of Rs 25,000.

We have two children. The elder son completed his post-graduation and is working in a college. The second son will complete his course in 2013. My spouse is a home maker. I own a house without liability. I may spend Rs 3 lakh on each of my son's marriage in 2013 and 2017.

How should I invest my retirement benefits? Is it sufficient to plan for a comfortable life for the next 15-20 years? What would be the best business after retirement? Currently I don't have any medical cover. What would be the ideal cover?

— K.V. Aravindakshan

With your monthly pension being higher than your monthly expenses, you can lead a comfortably life as long as your pension grows at 4 per cent per annum and inflation hovers around 7 per cent. After meeting your monthly expenses, you will be left with surplus for the next 25 years. In the event of any untoward happening, your family pension is likely to come down. In such a case, your wife can lead an independent life if you accumulate the earlier years' surpluses.

Regarding investment options for your retirement benefits, it appears that you have a moderate risk profile going by your investment strategy. For such a profile it is better to restrict your equity exposure to less than 20 per cent of the assets. It is better to avoid direct equity exposure and route your investments through mutual funds.

As you have not mentioned why you want to start a business, we presume it's only to meet the shortfall. Since you are having sufficient surplus, we suggest you purse your passion after retirement.

But if you still want to engage in a business, ensure that you do not utilise more than 30 per cent of your retirement benefits. We recommend this strategy only to keep a cushion for future needs.

Regarding your health cover, it is always better for individuals to take health cover at least four years before their retirement to protect from pre-existing ailments. Insurers entertain claims on pre-existing aliments after a four-year waiting period from the date or start of the policy. In your case, take a medical cover for Rs 5 lakh even if your son's employer offers family cover. That way, you will have a shield even if your son switches jobs.

Sun Pharmaceutical – Sun offers to buyout Taro ::RBS

Sun's offer to buyout remaining stake in Taro at US$ 24.5/share valuing Taro at US$1bn (valued
at 7.25x EV/EBITDA and 10x PE) is a positive in our view. Sun holds 66.3% stake in Taro at a
total investment of US$ 260m. We expect more value-accretive deals as Sun holds US$1bn in
cash and cash equivalents.


Sun offers to buyout remaining 33.7% stake in Taro - a positive
􀀟 Sun Pharma has proposed to acquire all outstanding shares of Taro Pharma (Sun's
subsidiary) for a per share consideration of US$24.50 in cash representing a 26% premium
over the 17 October 2011 closing price of US$19.45 (post the offer, Taro's stock closed 23%

higher at US$24/share). This offer, however, is subject to the approval of Taro Board and
such other authorities as may be required and subject to completion of necessary
compliances/formalities as may be required.
􀀟 Sun currently holds a 66.3% equity stake (with 77% voting rights) in Taro with a total
investment of US$260m till date (the company bought a 9.4% stake from Brandes
Investments Partners on 19 February 2008 for US$38m (valued at US$10.24/share) and a
12% stake from Templeton Asset Management on 1 November 2010 for US$82m (valued at
US$16/ share).
􀀟 With Taro reporting US$106m of PAT in the last four quarters, Sun's offer values Taro at
US$1bn (at 7.25x EV/EBITDA and 10x PE).
While the offer seems lucrative for Sun, there are some hurdles
􀀟 However, this has been objected by Grand Slam Master Fund, LTD (Grand Slam) which has
expressed its dissatisfaction with the offer by Sun Pharma as Taro has traded in the public
markets at a discount to its peers despite having strong free cash flows, great operating
margins and double digit revenue growth. This was caused by the Board's failure to have
Taro's shares trade on a nationally recognized exchange despite qualifying to do so. In no
way does the offer at a 23.80% premium to current share price fairly value the shares.
􀀟 The fund believes a fair offer would be at a minimum of US$48.5 per share (which would be
valued at ~15x EV/EBITDA and ~20x PE) based on the deals happened in the past ranging
from 15x EBITDA on the low end to 24x on the upper end of the range.
􀀟 Thus the fund believes that Sun's offer is at a healthy discount to the EV/EBITDA of Taro's
competitors despite the fact that Taro is growing more quickly and has higher margins than
these companies.
We expect more value-accretive deals
􀀟 Sun made eight acquisitions in 1996-2001, but has made fewer since. The company raised
US$350m in 2004 to fuel further growth and made a few small acquisitions. However, we
believe, it could make no large acquisitions because of expensive valuations.
􀀟 Sun acquired a controlling stake in Taro in September 2010 after three years of litigation. In
June 2011, it has acquired the 24.5% of Caraco that it did not previously own for US$46.8m
(or US$5.25/share), and now owns 100% of Caraco.
􀀟 We believe Sun is now well positioned to make value-accretive deals, despite the ongoing
global slowdown, as the company has US$1bn in cash and cash equivalents.
Structurally well positioned; maintain Buy
􀀟 Sun looks structurally well positioned for growth, as 83% of its revenues are from the US
(benefiting from a robust ANDA pipeline, improvement in Taro and a depreciating INR) and
India (above industry growth). Moreover, with US$1bn in cash, Sun looks well poised to
achieve value-accretive deals.
􀀟 We value Sun’s core business at Rs518 (20.9x FY13F, at a 10% premium to the sector) and
one-offs at Rs7 (after a 20% execution discount) resulting in an SOTP-based TP of Rs525.