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Torrent Pharmaceuticals on Friday said that it has entered into a definitive binding agreement with Unichem to acquire its branded business of India and Nepal for a consideration of Rs 3,600 crore.
Unichem's India business comprises a portfolio of more than 120 brands in India and Nepal, a manufacturing plant at Sikkim catering to these markets and all the employees engaged in the said business.
The deal values Unichem domestic formulation business at little over four times of its turnover in FY17.
Unichem India business clocked sales of Rs.841.5 crore representing 59.5 percent of the company revenues in the year ended March 2017
Torrent will fund the acquisition through a mix of internal accruals and bank borrowings.
The deal expected to close by end Of 2017. More than 3,000 employees will get added to Torrent's employee pool.
The acquisition helps Torrent to consolidate its market share in terms of sales which will increase from current 2.4 percent to 3.4 percent in the IPM - making it the fifth largest drug maker in India.
As per the SMSRC prescription audit database, Torrent rank in terms of overall prescription in the Indian Pharma market will move from 14 to 7.
The acquisition will add a brand of Rs 200 crores and three brands of more than Rs 50 crore, to tis existing portfolio. The top brands include Losar, Unienzyme, Ampoxin, Telsar and Vizylac.
In its existing key therapies, the market share in cardiology, central nervous system, gastro-intestinal therapies will increase from 5.6 percent to 8.6 percent; 6.4 percent to 8.4 percent; and 3.1 percent and 3.9 percent respectively.
This will be Torrent's fifth acquisition in India after acquiring the selected brands of Elder and Novartis, as well as manufacturing plants from ZygPharma and Glochem Industries Ltd in the last four years.
"The transaction is strategic fit for Torrent and will strengthen its position in the key segments of cardiology, diabetology, gastro-intestinals and CNS therapies," said Samir Mehta, Chairman of Torrent Pharmaceuticals.
It is also expected to realise cost and revenue synergies in Torrent's branded business in India," Mehta said.
Post the sale Unichem said it will continue to have greater focus on international business comprising of manufacturing, selling and marketing of fixed dosage formulation and API, in addition to investing on complex generics and biosimilars.
"The deal will enable the organisation to deliver superior results in areas of innovative research, new chemical and biological entities and move into next orbit of growth," said Prakash Modi, Chairman of Unichem Laboratories.
Modi in an interview to CNBC-TV18 said that he is looking at the "best method to reward shareholders" through either a buyback or a dividend.
Modi didn't specify how much of the sale proceeds will go towards rewarding shareholders and added that his board will take a decision on it.
Analysts said the deal was overvalued as Unichem products are old molecules, growing at slower pace possibly extending the payback period for Torrent.
On positive said expect the deal to help Torrent expand its market share - by broadening its portfolio in key chronic segments like cardiovascular (CVS) and central nervous system (CNS).
"In terms of overlap there is not much, so it is a good deal in that sense, but from financial perspective I think it's at higher side for Torrent, they have bought these products at a very expensive valuation," said Amey Chalke, Research Analyst at HDFC Securities.
Chalke said the acquisition will add new debt to the tune of Rs 2000 - 2500 crore for Torrent, in addition to the existing Rs 2000 crore debt on books.
They can fund up to Rs 800 - Rs 1000 crore with existing cash flows but the remainder will have to come from borrowings, Chalke added.
The acquisition was announced after market hours.
Shares of Torrent Pharma declined 0.76 percent to close at Rs 1315.30 on BSE, while Unichem shares gained 0.59 percent to close at 313.30.
Ahmedabad-based Torrent Pharma announced its September quarter results on Friday. The net profit came in at RS 204 crore, down by about 1 percent against RS 207 crore year on year. The revenue was unchanged at Rs 1,429 crore year on year.
At the operating level, the EBITDA was reported at Rs 329 crore against Rs 330 crore year on year, while the operating margin was reported at 23.02 percent against 23.09 percent during the same period last year.
Unichem Labs too reported its quarterly results and the net profit came in at Rs 45.8 crore against Rs 20.5 crore year on year. The revenue, in this case, was higher by 18 percent at Rs 428.1 crore against RS 364.2 crore year on year.
The EBITDA was 82.8 percent higher at Rs 72.3 crore against RS 39.6 crore, while the margin was reported at 16.9 percent against 10.9 percent.
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