Torrent buys Elder's formulation biz for Rs 2Kcr; stks tank
Analysts pointed out that post payment of debt and taxes, Elder would only be left with cash of about Rs 400 crore and peripheral businesses that are not as profitable as the one it has sold.
December 14, 2013 / 12:54 IST
Elder Pharma sank 8.2% after the firm announced the sale of its domestic branded formulations business to Torrent Pharmaceuticals for about Rs 2,000 crore.
Elder was looking to hive off assets in a bid to reduce its Rs 1,300-crore debt, and was also reportedly in talks with Sanofi earlier.But the stock reacted negatively after it emerged the company had put its core business comprising key brands such as calcium-supplement Shelcal, among others, on the block.As part of the deal, Torrent would acquire Elder’s Indian business that comprises of 30 brands in segments such as women’s healthcare, pain management, etc.The deal, though, only transfers Elder’s brands along with the staff related to the sold business. The company will retain control of tangibles such as plant and facilities, and would continue to manufacture products for Torrent for a period of three years.The sale helps address Elder’s recent challenges relating to debt and would help the firm deleverage its balance sheet, CMD Alok Saxena said. “We will now focus on growing our in-licensing, anti-infectives and exports business.”Analysts, however, pointed out that post payment of debt and taxes, Elder would only be left with cash of about Rs 400 crore and peripheral businesses that are not as profitable as the one it has sold.
Shelcal was a formidable brand and virtually the face of Elder Pharma, said Vikas Dandekar of Pharma Asia News. “Much of the Rs 2,000 crore [acquisition amount] is coming to Elder because of Shelcal,” he added. “There will be a bit of a negative sentiment about what is left with the company [after this sale].”In the 15-month period ending June 2013, Elder had clocked gross profits of Rs 157 crore on sales of Rs 1,233 crore. The company's market capitalization is around Rs 680 crore.Good fit for TorrentSudhir Mehta, Chairman, Torrent Group, said the transaction was a strategic fit for Torrent and would strengthen its core prescription-based business. “The deal would also result in cost and revenue synergies in our existing domestic formulations business,” he added.Torrent has a strong presence in Europe and Latin American markets with 55% of revenues from abroad, said analyst SP Tulsian. “They have a relatively small presence in the local market,” he added, pointing out that Elder has a strong domestic portfolio of brands such as Shelcal and Chymoral in India. “So this is a good deal for Torrent.”Torrent said it would fund the acquisition through a mix of internal accruals and bank borrowings.
‘Deal could break barriers for large domestic consolidation’With all the financial gains this deal offers, this has thrown some new colors in the Indian pharma space. A market, which has primarily seen cross-border M&A deals, this time has two Indian firms - Torrent & Elder pharma shaking hands for consolidation. But throughout last year Sanofi was also in race to acquire Elder Pharma. But eventually the deal turned to a domestic drug maker. Vikas Dandekar said, “That is the market speculation. Sanofi would have also got into trouble with the issues of foreign direct investment (FDI) that is going on. Lot of reservations are being expected from the ministry level on whether top brands can be sold and how it will impact the pricing of brands available in the country.”Experts say this deal could fuel fresh interest in domestic consolidation, especially when MNC buyouts of Indian drug firms have met with serious criticism of late. The health ministry, ministry of commerce and the dept of pharmaceuticals are still divided on the contours of the pharma FDI policy as they want to allay fears of an oligopolistic market.The domestic drug manufacturers have long been seen only as staunch competitors. In over a decade, only a few domestic consolidation deals took place - Glenmark buying diabetes brands from Lyka way back in 2000, Piramal Healthcare acquiring brands from Khandelwal labs in 2008, or the most recent one in 2011 where Zydus Cadila acquired Mumbai based Biochem Pharma.But the Torrent-Elder deal could break the barriers for large domestic M&A deals going forward, say experts.Did someone get whiff of deal?Another interesting angle behind the fall in the Elder stock is revealed from market data.According to National Stock Exchange data, the stock went from Rs 288 to Rs 321 in the two days prior to the announcement of the deal -- an 11.5 percent gain.The rise also came on the back of higher-than-normal trading in the stock with two-day traded volumes standing at 6 lakh shares, 15 times the average of 40,000 shares that were traded in the previous five-day period.Torrent Pharma also closed the day lower. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
