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Business News/ Companies / Piramal Healthcare’s i-pill acquisition has long-term potential
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Piramal Healthcare’s i-pill acquisition has long-term potential

Piramal Healthcare’s i-pill acquisition has long-term potential

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In a conference call after its December results, Piramal Healthcare Ltd’s chairman, Ajay Piramal had said that the environment for acquisitions was getting difficult. And that he would prefer an acquisition in the domestic market and in a niche category.

Piramal’s acquisition of over-the-counter (OTC) emergency contraceptive i-pill from Cipla Ltd does meet those parameters. I-pill is the market leader in this Rs100 crore category, with nearly one-third share of the market.

But Piramal’s acquisition does not seem cheap, what with it paying about three times sales for this product. The rationale seems to be that it has acquired an OTC product in a new and fast growing market, and one with good growth potential.

Cipla has exited this market to focus on the prescription drug market, which is its main strength. Besides, the promotion and usage of OTC contraceptive drugs had also attracted negative publicity. That is a challenge that Piramal will have to face, but it is also better placed to handle an OTC product. The company not only has an extensive distribution network, but also a growing OTC business.

In the nine months ended December, Piramal’s OTC business grew by 46.6% to Rs84 crore and contributed to 3% of its consolidated revenues. I-pill will add around 28% to its OTC business.

Still, it seems puzzling that Piramal’s share price would rise by 3.4% for an acquisition that will add barely 1% to consolidated sales. Key driving factors could be the high growth potential visible in this nascent category and faith in Piramal’s ability to convert this into a significant contributor to revenues.

In the immediate future, sustained growth in Piramal’s healthcare solutions business and a better performance from its pharma solutions business (sales declined by 12% in the nine months ended December) will be key valuation drivers. The beneficial impact of the i-pill acquisition will be visible in its financials only in the longer run.

Write to us at marktomarket@livemint.com

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Published: 23 Mar 2010, 09:55 PM IST
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