Dr Reddy’s Laboratories share price rises 2.6% on OTC brands acquisition outside the US: : Among key Nifty-50 gainers

Stock Market today: Dr Reddy's Laboratories share price remains in focus as it announced acquisition consumer healthcare brands from a Swiss company in the Nicotine Replacement Therapy category, outside the United States.

The announcement was made post market hours on Wednesday, and Dr Reddy's share price gained around 2.6% in the morning trades on Thursday on the NSE . Dr Reddy's share price was second largest gainer among Nifty-50 stocks.

Acquisition of brands in the Nicotine Replacement Therapy category

Dr Reddy's Laboratories on Wednesday post market hours announced that it has entered into a definitive agreement with Haleon plc and its associate companies (“Haleon Group”) to acquire consumer healthcare brands in the Nicotine Replacement Therapy category, outside the United States.

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Dr. Reddy’s Laboratories SA, Switzerland, a wholly owned subsidiary of the Company, will acquire all of the quotas of Northstar Switzerland SARL (“Northstar Switzerland”) incorporated in Switzerland, a Haleon group company.

The Four brands being acquired which include global leader Nicotinell had sales of GBP217 million for CY23. The acquisition being made by Dr. Reddy’s Laboratories SA is on an upfront cash consideration of GBP 458 million and additional performance-based contingent cash payments of up to GBP 42 million in Calendar year 2025 and Calendar Year  2026, said Dr Reddy's in its release.

Valuations-

Since the Nicotinell had sales of GBP 217 million for CY23 and is being acquired for around GBP 500 million and hence this translates into acquisition is being made at 2.3 times sales,  and around 9 times Enterprise Value to Ebitda as per Jefferies India Ltd.

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Analysts Views

On the positive side the acquired four brands in the Nicotine Replacement Therapy space are recommended by the ‘WHO Model List of Essential Medicines’ for nicotine use disorders. 

Also the brands are marketed in about 31 nations. Around 80% of revenues in CY 2023, came from top 12 nations whcih include the UK, France, Sweden, Denmark, Finland, Norway, Australia, New Zealand, Canada, Japan, Germany, and the Netherlands.

On the other hand, the product portfolio being acquired has had almost stagnant revenues of approximately GBP 217 million, GBP 200 million and GBP 201 million in CY 2023, CY 2022 and CY 2021, respectively. The same will require upfront investments said analysts. Analysts at Jefferies India Pvt Ltd in their report said that the impact of synergies from the acquired portfolio should start reflecting only over FY27-28. 

Analysts at Centrum Broking however have slightly increased their FY26 EPS estimate by 2% on account of a higher brand equity of the acquired portfolio, nevertheless offset by increase in operating expenses.

While Centrum Broking has a Add rating on the Dr Reddy's share price with target price of ₹6,710. 

ICICI Securities too has raised EPS estimates for FY25 and 26 respectively by 1% and 3%, respectively. They maintain HOLD with target price raised to ₹6,250 (earlier ₹6,050)

Jefferies on the other hand has underperform ratings on Dr Reddy's share price with a target of ₹5010

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions