Torrent to buy Elder’s branded formulations

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SummaryAt Rs 2,000 crore, analysts see the deal as an expensive one.

The Rs 3,212-crore Torrent Pharmaceuticals said on Friday that it will buy out Elder Pharmaceuticals’ branded domestic formulations business in India and Nepal for about R2,000 crore.

The business comprises women’s care, pain management, wound care and neutraceuticals or vitamins, the combined revenues for which are estimated at around R350-400 crore for trailing 12 months, valuing the deal at 4.5-5 times sales. At the retail level the revenues for the portfolio are estimated at close to R550 crore.

Analysts point out that given that Cadila acquired Biochem in a similar transaction for a smaller valuation, albeit in 2011, Torrent’s purchase is somewhat expensive. Torrent has said it will fund the acquisition through a mix of internal accruals and bank borrowings; the company’s cash and cash equivalents amount to R939 crore and the firm had a total debt of R913 crore as on September 30, Bloomberg data show.

Since, the business is being sold as a going concern, on a slump sale basis, Torrent will not need to make an open offer to minority shareholders. Elder will continue to manufacture and supply products at the existing manufacturing facilities for Torrent for three years, on a contract manufacturing basis.

Analysts point out that Torrent might need to borrow at least R1,300-1,400 crore to fund the purchase. However, Ebitda from the new portfolio is estimated at just over R100 crore. “The EV/FY15 Ebitda could rise to as much as nine times from the current 7.5 times and Torrent’s working capital too may worsen for a while,” explained an analyst.

Shares of both companies fell on Friday. Elder Pharma closed down 8.17% at Rs 298.30 on Friday on the BSE while Torrent closed down 4.04% at Rs 479.50.

Alok Dalal, who tracks the pharma sector at Motilal Oswal, however felt the acquisition provides Torrent with an opportunity to strengthen its acute therapies portfolio especially in the gynaecology segment, where it is a recent entrant. “Torrent derives a higher proportion of its sales from the chronic therapies business and is trying to get a foothold in the acute therapies space so this purchase will facilitate that,” Dalal

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