Post Elder deal, Torrent Pharma to strengthen focus on domestic market

Torrent to now have access to Elder's 30 brands, including women's healthcare, nutraceuticals

With the acquisition of the branded domestic formulations business of debt-ridden Elder Pharma, Gujarat-based Torrent Pharma, which now derives almost 57 per cent of its revenues from international markets, is likely to turn its focus on accelerating its growth in the domestic market.

The company's international business has clocked a compounded annual growth rate (CAGR) of over 24 per cent in the last five years and now accounts for more than 57 per cent of its total revenues. Torrent has a strong presence in over 50 countries, covering the United States, Latin America, Russia and Commonwealth of Independent States (CIS), Europe, Canada, Rest of the World (ROW) and UK.

In comparison, the company's domestic formulations business had registered a 13 per cent growth in 2012-13, mainly on the back of diabetology, cardiology and the CNS portfolio. The Elder acquisition, which gives Torrent a greater access to the over-the-counter (OTC) drugs segment, would basically help in re-aligning its key segments in the domestic market, feel Torrent insiders. As of now, Torrent has a strong presence in the chronic segment, as 66 per cent of the domestic revenue is from the chronic segments comprising cardiology and neuro-psychiatry among others.

"Elder has a great presence in the women care and OTC segments, with well established brands. Products like Shelcal have around 50 per cent market share in the segment. We felt that all we need to do is keep supporting these brands, and they will continue to grow," said a senior official in Torrent Pharma. He added that the virtually debt free company had huge cash reserves in its books, of around Rs  1,000 crore, and it wanted to utilise the funds to accelerate its growth in the domestic market and strengthen its position further. Torrent did not have much presence in the women care segment, and even in vitamins it has very negligible presence. As per the deal, Torrent will now have access to Elder's portfolio of 30 brands, including categories such as women’s healthcare, pain management, wound care and nutraceuticals.

An interesting arrangement worked out in the deal is that Elder would continue to manufacture and supply the products at its manufacturing facilities for Torrent for three years. The transaction would also involve the transfer of employees engaged in sales, marketing and operations of the India business.

"This means there is not much immediate additional investment required in the near term for manufacturing or marketing. We will eventually decide, whether we want to bring the manufacturing of these products to Torrent's facilities or outsource production," said a source in Torrent.

What's more, Torrent has been cautious when evaluating Elder's portfolio. Another senior official said, "These products are not under the Drug Price Control Order (DPCO), and they are not expected to come under the DPCO either."

As far as absorbing the impact on the balance sheet goes, Torrent hopes that it would take around 8-10 quarters to absorb the impact on the bottomline. With a consolidated sales revenue of around Rs  3212 crore (FY13), the company had posted a healthy growth in its operating profit to Rs  736 crore, up 35 per cent. Its net profit was up by 52 per cent in 2012-13 to Rs  433 crore.