Investment banking circles say that Lupin is expected to appoint a merchantbanker for the exercise shortly, though Lupin Labs director (corporatedevelopment) Kavita Gupta refused to comment on the issue. Gupta maintainedthat the group was "reviewing the merger option".

Analysts tracking the company, however, said that the proposed merger madetremendous business sense even while giving the group an opportunity tocleanse its balance sheet. "It makes sense to consolidate the group's purehealthcare operations, while ridding itself of non-core assets. We expectthe group to emerge much stronger, offering better shareholder value oncethe merger of Lupin Labs with Lupin Chem happens," the analyst added.

While the sequence of events or spin offs, if any, are unclear, analysts saythat much of the pre-merger action could be expected at the larger LupinLabs. The Lupin Labs scrip, which has lost much of its sheen withintroduction of rolling settlement (when it was almost 2.5 times the currentprice), closed at Rs 230 while Lupin Chemicals closed at Rs 22.50 on theBSE.

Lupin Chem, with an equity capital of Rs 33.54 crore, essentiallymanufactures rifampicin which goes into a host of anti-TB drugs, while LupinLaboratories, with an equity capital of 34.09 crore, is a world leader inethambutol (an anti-TB drug) segment and a prominent player in thecephalosporins segment.

Analysts at a leading portal maintain that with Lupin Labs shifting itsfocus to capital efficiency, the ROE should rise to historic levels of over20 per cent by fiscal 2001. Topline and bottomline growth for the year endedJune 2000, are expected to be in the region of 15 per cent and a whopping100 per cent respectively, analysts added.

Lupin which is already implementing the McKinsey recommendations on thesystems and processes front, has infused fresh talent at the seniormanagement level. The revamp has also seen the weeding out of older,low-turnover brands given that 75 per cent of Lupin Labs sales come from 20per cent of its large brands. The revamp which began in August 1999 isexpected to be complete by December 2000.

Meanwhile, Lupin Labs has completed clinical trials on its anti-migrainedrug, based on phyto-chemistry. The company already has approvals forconducting trials in Europe, though it has yet to decide whether to go aheadwith an Indian launch. The global market for the product is estimated to beworth over $2 billion. The company has also recently launched its celecoxibbrand, Celox, in India.

Lupin is also working on reducing its credit risk and improving the marketshare of its business in China, even while adding more products to its Thaioperations in the backdrop of a recovery in the Asian markets.