Research Notes

On April 23, 2007 Pharmstandart, Russia's biggest pharmaceuticals producer, kicked off a road show as part of its initial public offering on RTS, MICEX and also LSE. The IPO price range was set at $46.20 to $58.20 per share and $11.55 to $14.55 per GDR, which puts the company's market cap at $1.75 bln to $2.2 bln.

The expected volume of stock placement voiced by the company accounts for roughly 40% of the shares held by the company's major shareholders. Thus, in the course of the IPO the company's shareholders bank on netting some $689-880 mln.

We calculated the target price for Pharmstandart shares ($53.20) which falls within the company's bookbuilding range: $46.20 to $58.20 a share. Consequently, we recommend investors to participate in Pharmstandart's IPO at the flotation price below $53.20.

In our view, the main factors capable of increasing investor interest in the upcoming IPO are as follows:

• Pharmstandart's strong positions on the Russian pharmaceuticals market. According to data from Pharmexpert, the company ranks in Top 5 of the country's major players, commanding over 3% of the market;

• Given high dynamics of the pharmaceuticals market, which exhibited 27% growth compared to 2005 and reached some $10.7 bln, Pharmstandart is the most lucrative target for portfolio investments taking into account its share of some 15% among domestic manufacturers;

• Based on 2006 performance Pharmstandart posted strong financial results: sales rocketed 56% on the year to more than $313 mln, net profit more than doubled and 2006 EBITDA margin came to 23.9%, which is far stronger than the indicators achieved by the company's primary rivals on the market;

with well-promoted brands which form Top 10 of the most sellable over-the-counter drugs, in our opinion, will enable the company to see high growth rates in sales and profit margins, outstripping the industry average.

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Sergey Filchenkov

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