Torrent’s acquisition boosts its derma portfolio; earnings benefits may take time to accrue
This acquisition will position Torrent as the second-largest player in cosmetic dermatology and will also strengthen its presence in the dermatology segment which is a high growth area
PremiumMUMBAI: Shares of Torrent Pharma were down more than 3% in early deals on Wednesday, after the company said, the previous day, that it has agreed to acquire Sequoia-backed skincare product manufacturer Curatio Healthcare (I) Pvt. Ltd for ₹2,000 crore.
The acquisition of Curatio, which has operations in India, Nepal, Sri Lanka, and the Philippines, will help strengthen Torrent’s dermatology portfolio. Curatio with more than 50 brands in dermatology therapy derives 84% contribution from cosmetic dermatology in non-regulated markets. During FY22, Curatio registered sales of ₹222 crore, up 25% year-on-year.
This acquisition will position Torrent as the second-largest player in cosmetic dermatology and will also strengthen its presence in the dermatology segment which is a high growth area.
“Considering Torrent Pharma has had minimal exposure to the dermatology segment (2% of domestic formulation sales), the acquisition would not only increase its offerings, but also widen its scope by connecting with dermatologists and paediatricians," said analysts at Motilal Oswal Financial Services Ltd (MOSFL).
The deal indicates an enterprise value of Curatio at ₹1,885 crore.
Analysts at MOFSL, however, feel that the deal valuation is expensive at 6.8 times EV/ FY23 sales, 22.4 times EV/FY23 EBITDA basis. They have, therefore, reduced their earnings estimate for Torrent by 2% for FY24 to factor in the Curation acquisition.
Analysts at Elara Securities (India) Pvt Ltd., too, said that while the acquisition was not margin-dilutive, earnings hit was inevitable
Torrent Pharma, with a strong presence in the domestic formulations market, has a good track record of turning around acquisitions. It had acquired Elder Pharma’s portfolio, which is contributing well to growth.
However, some analysts feel that the current market environment of high competition, lack of portfolio differentiation, among others, are the challenges Torrent could face with the Curatio acquisition.
Analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd. said that the implied valuation for this deal based on company-provided data is 8.4 times/6.7 times FY22/23 sales (versus valuation of 2.2x-9.8x sales for key deals in India pharma market). However, they feel that the “ask-rates" are steep (targeted revenue growth of 25% and EBITDA margin of 30%+) to realise synergies from the deal.
“While we like Torrent’s branded generics focused portfolio (70% of revenues), we believe the steady growth outlook in India (its key market) is already priced in," said analysts at HSBC. Recovery in generics markets the US and Germany is still some quarters away, it added.
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