Shares of Ipca Laboratories slumped to a fresh 52-week low in early trade on April 26 as the company's plan to acquire a stake in Unichem Laboratories remained an overhang on the stock.
Ipca announced its plans to acquire a 33.38 percent stake in Unichem Labs on Monday. The stake buy will be priced at Rs 400 per share, aggregating around Rs 1,034.06 crores. The company will also buy an additional stake of upto 26 percent through an open offer priced at Rs 440 per share.
Since Ipca's stake buy and open offer are priced at an over 3 percent and 13 percent premium, respectively, to Unichem's closing price on Monday, it tilts the risk-reward in favour of the latter.
Brokerage firm ICICIdirect also pointed this out and said, "At 2.4x TTM FY23 sales, the deal seems a tad costlier given the lower profitability of Unichem's exports-driven business."
Consequently, shares of Ipca nosedived 10.33 percent on Tuesday. The downslide in the stock extended to the second session and at 09.57 am, shares of Ipca Laboratories were trading with a cut of 4.87 at Rs 705.05 on the National Stock Exchange.
Ipca Labs shares also hit a fresh 52-week low of Rs 697.40 earlier in the day. Around 20 lakh shares also changed hands on the exchanges so far, as against the one-month daily traded average of eight lakh shares. Trading volumes were sharply higher in the previous session as around 82 lakh shares exchanged hands on the bourses.
Also Read: Ipca to acquire 33.38% stake in Unichem Laboratories for Rs 1,034 crore
Aside from the deal being overvalued, investors are also disappointed by the fact the Ipca chose to invest a higher sum of money for Unichem despite its subdued financials and plain vanilla portfolio.
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"We are cautious on Ipca’s proposed acquisition of up to ~60 percent stake in Unichem as it gets a plain-vanilla generics portfolio and flat revenues for last four years," brokerage firm Nuvama Institutional Equities stated in its report.
As for Motilal Oswal Financial Services, the firm highlighted that the acquisition would enable Ipca's re-entry into the US generics market and aid synergy through cross-selling the portfolio in the export market. However, the firm believes that increased competition in the oral solids US generics market and no USFDA inspections at Unichem's sites since February 2020 also puts the outlook for their US generics business at risk.
Bogged down by the unfavourable risk reward, MOFSL also downgraded Ipca to neutral on expectations of a limited upside from current levels. The brokerage has assigned a target price of Rs 760 for Ipca, reflecting an upside potential of 2.5 percent from Tuesday's closing price.
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