M & A CritiqueTorrent Pharmaceuticals had acquired the branded domestic formulations business of Elder Pharmaceutical in India and Nepal for Rs 2,004 crore. The deal helped the Ahmedabad‐based company to widen its market share and bolster its total turnover to Rs 4,831 crore and Elder to cut debts and restructure operations.
Elder’s India business comprises a portfolio of 30 brands mainly in the women’s healthcare, pain management and nutraceuticals business. Its premium calcium supplement brand Shelcal has a market share of 30‐32%. Torrent will mainly get a foothold in women’s healthcare and pain management business. Elder which has six manufacturing facilities will continue to manufacture and supply the products at its existing facilities for Torrent for three years. It is a step to restructure business to clear debt worth Rs 1,300 crore, accumulated after multiple acquisitions abroad.
ELDER GROUP:
Elder group is a listed and Mumbai‐based integrated pharmaceutical player with a portfolio of over 30 brands, including leading brands in areas of women’s healthcare, pain management, wound care and nutraceuticals. The brands include Shelcal, Chymoral, Eldervit, Formic and Carnisure. The Company has six manufacturing facilities for manufacturing formulations ‐ three in Maharashtra, one in Himachal Pradesh and two in Uttarakhand and APIs and State‐of‐the‐art R&D facility located in Nerul (Maharashtra) to provide analytical and development support.
TORRENT GROUP:
Torrent Pharmaceuticals Limited is the listed and flagship Company of the Torrent Group, has an annual turnover of over Rs 3500 crore. With many of its products ranking among the top 200 brands, Torrent continues to be at the forefront of the Indian pharmaceutical industry. Torrent has a fully equipped Research Center, employing almost 600 scientists, to support the company’s operations and product pipeline for both domestic and overseas markets. The company’s manufacturing plants located at Indrad, Baddi & Sikkim have facilities to produce Formulations and Bulk drugs. The plants are approved by authorities from various regulated and semi regulated markets like US, UK, Brazil, Germany, Australia and South Africa.
Utilisation of funds
Elder used the deal proceeds to pare its debt which and de‐leverage its Balance Sheet. It continues to manufacture and supply products at existing facilities for Torrent for three years. It focus in licensing, anti‐infective and exports business worth Rs 1,400‐crore and the company has about 25 licensing partners whose products it sells in India.
VALUATION:
At Rs 2,004 crore, the deal worked out to be around four times the business Torrent is willing to acquire, that is, woman healthcare, pain management and wound care and nutraceuticals. 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. In the near term, there will likely be an overhang of increase in Torrent Pharmaceuticals’ net debt and pressure on return ratios post the Elder Pharmaceuticals Ltd acquisition. The estimated total debt outstanding by financial year 2014‐15 was Rs 2,600 crore. The corresponding gearing ratio is likely to be about 1.30. The acquisition is expected to be cash accretive by second year and EPS (earnings per share) accretive by third year.
WHAT TORRENT GAINED?
For Torrent, the acquisition makes abundant sense. It will tap Elder’s 2,900 stockists, particularly in smaller centres, and 1,100‐strong field forces for the sale of its own products. The deal gave a boost to Torrent’s existing 1,700 stockist network to more than 4,000, many of which cater to markets where it has relatively less access in Tier‐II, ‐III and ‐IV towns. It will increase Torrent’s overall market share to 2.7% in the highly fragmented domestic drug market from 2% now, taking it to 12th rank from 17, according to IMS Health data. The acquisition will make Torrent the third‐largest company in the Rs 4,773 Crore women’s health and nutraceuticals market, where it will command a 6.2% share, compared with its existing 0.4% share and 45th rank. This is a fast growing segment in which the company had been exploring plans for a big bet in the near future. Women in India spend close to 24 years post menopause with the accompanying age related ailments. About 35‐40% of women in 40 to 65 years and all women over 65 have been detected to have either osteopenia or osteoporosis. Calcium needs to be continually supplemented during a women’s life-cycle as a bulwark against osteoporosis in later life.
The deal strengthened Torrent’s foothold in the Rs 5,088‐crore pain management market by taking its combined market share to 2.7% from 0.9% now. The company had entered the segment in 2013 by creating a dedicated division.
Elder’s existing brand equity in the areas of women healthcare and pain management will help Torrent strengthen its position in the Indian market. This acquisition strengthens their position in the Women Healthcare, Pain management & Vitamins/Nutrition segments by enhancing & accelerating market access. It is also expected to enable cost & revenue synergies in Torrent’s domestic formulations business.
WHAT ELDER HAS GAINS OR LOSS?
Shares of Elder Pharma rose 7% to Rs 349 on BSE after the company said it has entered into business transfer agreement (BTA) for the sale of domestic formulation business to Torrent Pharmaceuticals for Rs 2,004 crore on slump sale basis. The deal concludes Elder’s most profitable business to Torrent. The transfer that will take a year to be acquired by Torrent will involve the transfer of employees engaged in sales, marketing and operations of the India business and portfolio of its 30 brands.
WHAT WILL ELDER DO?
After the Torrent Pharmaceutical deal, Elder Pharmaceutical would focus on brand building and enter new herapeutic areas to drive gr owth. After Torrent Pharmaceuticals’ 2,004‐crore acquisition deal, Elder harmaceuticals Ltd (EPL) plans to concentrate and build on its domestic business of anti‐infectives, strengthen in‐license portfolio and grow its business in the UK and in Europe. It is also exploring the possibility of entering new therapeutic areas.
Elder Pharma has acquired UK‐based Max Healthcare for an undisclosed sum, marking its entry into the over‐the‐counter business. Besides NeutraHealth, it’s fully owned subsidiary in the UK, it has a majority stake in Ghana’s Wincom Formulations and Bulgaria’s Biomeda OOD Ltd. EPL expects an increase in its consolidated revenues and to re‐structure and re‐strategise brands and people. EPL would easily increase its revenues and profitability,” Elder Pharmaceuticals chairman and managing director Alok Saxena said in the statement.
EPL plans to concentrate its efforts to increase its presence in injectables and anti‐infectives’ segments to nearly triple the turnover of its retained business in the next three years. Elder’s focus would be on creating a product in a therapeutic category and to establish brand leadership in that segment, apart from developing its own portfolio.
CONCLUSION:
It is good strategy move by both the companies, as Elder first acquired companies in UK and Europe as mentioned above and then exit from the current business operation relating to woman healthcare, pain management, wound care and nutraceuticals whereas the torrent has acquired the business from the Elder mainly through the internal accruals.
