Torrent acquiring Elder Pharma’s domestic formulation business for $322M

Mumbai-based Elder Pharmaceuticals Ltd is selling its domestic formulation business in India and Nepal to Ahmedabad-based drug maker Torrent Pharmaceuticals Ltd for Rs 2,004 crore, the companies said in a filing.

According to Elder, the company has over 30 brands across women’s healthcare, pain management, wound care and nutraceuticals which would be transferred to Torrent as part of this transaction.

Torrent will fund for this acquisition through a mix of internal accruals and bank debt, according to the release.

“The 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 export businesses,” said Alok Saxena, managing director and CEO of Elder.

The Indian business of the company is being sold as a going concern on a slump sale basis and the transaction will also involve the transfer of employees engaged in sales, marketing and operations of the Indian business.

According to Elder, under the transaction Elder will continue to manufacture and supply the products at its existing manufacturing facilities for Torrent over three years.

“This transaction strengthens our position in women healthcare, pain management and vitamins/nutrition segments by enhancing and accelerating market access. It is also expected to enable cost and revenue synergies in Torrent’s domestic formulation business,” said Sudhir Mehta, chairman of Torrent Group.

The transaction has been approved by the board of directors of both companies. Elder was advised by Nomura along with E&Y for transaction while Khaitan & Co. was the tax advisor.

Shares of Torrent Pharmaceuticals dipped by four per cent at Rs 479 from previous close of Rs 499 at 3 pm on Friday. While shares of Elder dipped by 7 per cent at Rs 303 on Friday compared with previous close of Rs 325.

Italian pharma company Angelini holds 12.75 per cent stake in Elder Pharma while Citi Venture Capital International has 8.42 per cent stake.

According to analysts in the space, Elder got a fair valuation on the back of its brands and is part of a larger trend of bigger pharmaceutical players looking for consolidation.

“Elder has two to three large brands which have high gross margin and its valuation is driven by these brands. This transaction is keeping in with larger trend of smaller companies being acquired by larger pharma players which are looking at consolidation,” said Mayur Sirdesai who heads healthcare and pharma space of Somerset Indus Capital Partners.

According to Mahad Narayanamoni, healthcare and life sciences leader at Grant Thornton, while a deal has supposedly been in the making for a while, Elder is a good target in spite of its high financial leverage.  “It’s definitely a good target, although it has struggled with leverage etc for some time. Outside-in, it does seem to be a fair valuation. Also generally you don’t see Indian players overpaying for acquisitions. This is a synergistic asset for Torrent which has a strong domestic presence and gives it the opportunity to augment that presence significantly,” he said.

There have been several players in the race of Elder’s domestic formulation including Lupin, Sanofi, Glenmark and two private equity players, according to media reports.

According to Shiraz Bugwadia, managing director at o3 Capital, this deal is good for Torrent from a marketing perspective. “It’s a good play from marketing perspective. Shelcal itself is a positive brand and gives Torrent a lot of marketing muscle. From a valuation perspective, it depends on whether Rs 2,004 crore is enterprise value or equity value. It definitely shows that Torrent is a serious player and sees itself in this space for the long haul,” he said.

(Edited by Joby Puthuparampil Johnson)

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