 "Torrent Pharma to buy Elder's India business for Rs 2,000 cr")
Torrent said the buyout would be funded by a mix of internal accruals and bank borrowings.
The transaction would also involve the transfer of employees engaged in sales, marketing and operations of the India business. Under the proposed transaction, Elder would continue to manufacture and supply products at its manufacturing facilities for Torrent for three years, a statement said.
Alok Saxena, managing director and chief executive, Elder, said: “This path-breaking domestic consolidation by Torrent addresses our recent challenges and will significantly help Elder de-leverage its balance sheet. We will now focus and grow our in-licensing, anti-infectives and exports businesses.”
Torrent said the deal fitted in its growth strategies in terms of portfolio, market presence and capabilities.
Mumbai-based Elder had announced restructuring plans to clear debts worth Rs 1,300 crore, accumulated after multiple acquisitions abroad. Sanofi and Novartis were in talks with Elder’s management for an acquisition. Elder had revenues of Rs 1,454 crore in the year ended March 31, 2013.
Analysts said the acquisition could stretch Torrent’s margins. Prafful Bohra, analyst with Nirmal Bang, said, “For Elder, the deal is a great bet as it takes care of its Rs 1,200-1,300-crore debt. With the remaining Rs 800 crore, after paying taxes, it would be left with cash of Rs 500-550 crore. Also, the remaining part of their business is nothing too great.”
The deal meant Torrent would have to take a debt of Rs 1,000-1,200 crore, said analysts, putting pressure on margins for two years. On the positive side, it would strengthen the company’s position in the over-the-counter (OTC) segment, a high-margin area. “While margins would be stretched for a while, the portfolio of Elder will give access to the high-margin OTC segment,” said Sarabjit Kaur Nangra, an analyst with Angel Broking.
Elder’s India business comprises a portfolio of 30 brands, including categories such as women’s healthcare, pain management, wound care and nutraceuticals.
Elder Pharma’s leading calcium supplement brand in India, Shelcal, has annual sales worth Rs 160 crore and makes up for 32 per cent of its domestic revenue. Pain management brand Chyromal has a market share of 80 per cent. Elder has six manufacturing plants — three in Maharashtra, one in Himachal Pradesh and two in Uttarakhand.
A Torrent Pharma spokesperson said the immediate benefit of the acquisition would be that it would strengthened its position in the women healthcare, pain management and vitamins segments by enhancing and accelerating market access. “It is also expected to enable cost and revenue synergies in Torrent Pharma’s domestic formulation business, and enhanced productivity at speciality level in orthopaedics and gynaecology, apart from a wider distribution network.” The company expects a boost to its revenues soon.
“On a MAT basis, our share will increase by 0.7 per cent in the Indian pharmaceutical market and propel us six ranks up,” said the spokesperson.
Among the domestic buyouts in the last decade, in 2010, Piramal Healthcare had bought Cipla’s oral contraceptive brand, i-Pill for Rs 95 crore while Maneesh Pharmaceuticals had acquired Kopran’s brand Smyle in 2008 for Rs 53 crore.
Though MNCs are keen on formulation business in India, issues such as lack of patent protection and pricing cap pull them back from going for expensive buyouts nowadays.
This year, global generic major Mylan acquired Agila Specialties, the injectables unit of Strides Arcolab for $1.6 billion. Other top inbound M&A deals in pharma sector include Daiichi Sankyo’s $4.6-billion acquisition of Ranbaxy, Rs 17,000-crore Abbott - Piramal Healthcare, Rs 3700-crore Sanofi-Shantha Biotec and Aventis Pharma’s Rs 500 crore acquisition of Universal Medicare Private Ltd’s branded nutraceuticals business in India.
Elder was advised by Nomura, with Ernst & Young being the transaction and tax advisor.