Dr Reddy's lab has already shown its interest for further hiking the stake by 15-20 per cent. According to market sources, the company has already clinched a deal with the associates of American Remedies' promoters.

American Remedies scrip, which is currently trading at Rs 160.65, is expected to rise past Rs 175 in anticipation of a open offer to purchase 20 per cent stake under the Sebi takeover code. The open-offer announcement is slated for around Wednesday December 1.

Marketmen expect American Remedies to be merged with Dr Reddy's at a later date. Two facilities - one at Chennai and another at Pondicherry (both approved by Australia's TGA) - are also part of the deal. Recently, American Remedies sold its bulk drugs unit to the Sanmar Group.

Analysts expect, including the open offer cost, the entire deal tocost Dr Reddy's approximately Rs 80 crore. For this amount, Dr Reddy's rank as per ORG's data will improve to number 5 after the acquisition, with a market share of 2.44 per cent. The key brands like Mucolite (dermatological preparation), Antoxid (anti-oxidant), Becozinc (vitamin B with zinc) Optisulin (vitamin B complex), BioE and GLA accounted for around 60 per cent of total sales of American Remedies.

The overlap between product portfolio of Dr Reddy's Lab and American Remedies is believed to be minimal. Although analysts feel the merger is favourable in the long term interests of Dr Reddy's, there are several concerns. First, the 800 odd American Remedies' employees that come along with the deal will account for a wage bill of around Rs 8.25 crore (around 10 per cent of the expenditure).

Secondly, vitamin products acquired from American Remedies fall under price control which could depress the margins of Dr Reddy's and also make it vulnerable to vagaries of NPPA. Lastly, the acquisition price isseen to be very high at Rs 175, especially as the American Remedies stock was trading at close to Rs 50 levels, three months back.

Nevertheless, marketmen expect the stock of Dr Reddy's Labs to rise amid speculative buying. The scrip is currently changing hands at Rs 1181 and it could once again touch its 52 week high level of Rs 1600.