To acquire branded domestic formulation business

Ahmedabad-based Torrent Pharmaceuticals, on Friday, agreed to buy Mumbai-based Elder Pharmaceuticals’ branded domestic formulations business in India and Nepal for Rs.2,004 crore.

Elder’s India business comprises a portfolio of 30 brands, including market leading brands in the women’s healthcare, pain management, wound care and nutraceuticals therapeutic segments, Torrent Pharma said in a statement.

The brands include Shelcal, Chymoral, Eldervit, Formic and Carnisure. The transaction has been approved by the boards of directors of both companies, and is expected to close in the first half of 2014.

Torrent, with a turnover Rs.3,200 crore, will fund the acquisition through a mix of internal accruals and bank borrowings.

On slump sale basis

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

Under the proposed transaction, Elder, which has six manufacturing facilities, will continue to manufacture and supply the products at its existing facilities for Torrent for three years. Torrent’s plants at Indrad, Baddi and Sikkim make formulations and bulk drugs.

“The transaction is a strategic fit for Torrent, and will strengthen its core prescription-based business,’’ Sudhir Mehta, Chairman, Torrent Group, said in a joint statement. “This acquisition strengthens our position in the 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 formulations business,’’ he added.

The deal would help Elder Pharmaceuticals address its recent challenges and “will significantly help Elder de-leverage its balance sheet,’’ said Alok Saxena, Managing Director and CEO, Elder. “We will now focus and grow our in-licensing, anti-infectives and exports business.’’

Analysts tracking the sector felt that it could be a win-win situation for both companies. “It will take some time for the deal to be beneficial for Torrent. Initial report has estimated the deal to take place at around Rs.1,700 crore, but it is clinched at Rs.2,000 crore,’’ said Rahul Sharma, Senior Analyst, Karvy Stock Broking.

“At Rs.2,000 crore, the deal works out to be around four times the business Torrent is willing to acquire, that is, woman healthcare, pain management and wound care and nutraceuticals,’’ said Siddhant Khandekar, Chief Manager, Research, ICICI Securities.

“This business currently stands at somewhere around Rs.500-600 crore out of Rs.1,000 crore overall domestic formulations. This will add to Torrent’s Rs.1,000 crore domestic formulations. The deal will be funded mainly via borrowings and partly by internal accruals. This will put some pressure on the Torrent’s virtual debt-free balance sheet, but augurs well in the long-run,’’ he said.

On the BSE, both stocks saw large swings during the day. Elder moved to a high of Rs.349, before closing lower by 8.17 per cent at Rs.298.30. Torrent Pharmaceuticals moved to a 52-week high of Rs.521, and closed trading down 4.04 per cent at Rs.479.50.

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