Glenmark Pharma share price declined over 6 per cent in early trade on BSE on Friday (September 22) as investors digested the latest reports of Nirma buying a 75 per cent stake in its subsidiary Glenmark Life Sciences. The stock opened at ₹815.95 against the previous close of ₹828.05 and fell 6.30 per cent to the level of ₹775.85 on BSE in today's trade so far.
As Mint reported, Glenmark Pharmaceuticals announced on Thursday (September 21) that it would sell a 75 per cent stake in its subsidiary unit Glenmark Life Sciences, to Nirma for ₹615 per share for an aggregate consideration of ₹5.651.75 crore. The Mumbai-based drugmaker will continue to own a 7.84 per cent stake in Glenmark Life Sciences with the stake reduction.
Read more: Glenmark Pharma to divest 75% stake in subsidiary Life Sciences unit to Nirma for ₹5,651 crore
Meanwhile, Nirma Ltd has agreed to buy 75 per cent of Glenmark Life Sciences for ₹5,651.5 crore in a deal that values the latter at ₹7,535.4 crore.
Nirma will make a mandatory open offer to all public shareholders of Glenmark Life Sciences for an additional 17.15 per cent stake at ₹631 a share. The life sciences company listed on the bourses in August 2021 at ₹720 a share. The sale will be subject to various conditions, including receipt of regulatory and shareholder approvals.
Shares of both Glenmark Pharmaceuticals as well as Glenmark Life Sciences traded in the negative in the morning trade while the Sensex was flat. Glenmark Life Sciences share price declined over 2 per cent in early trade on BSE on Friday.
However, both stocks have seen stellar gains in the last one year. Glenmark Pharma share price has surged over 103 per cent in the last one year while Glenmark Life Sciences share price has jumped over 50 per cent. Equity benchmark Sensex has gained about 12 per cent in the same period.
The Nirma-Glenmark Pharma deal is positive for Glenmark as it will turn the company into net cash which it can use to improve the branded generics business. However, brokerage firms do not appear upbeat about the stock at this juncture.
Nuvama Wealth Management said selling a profitable franchise to pare debt may not seem prudent, but given Glenmark Pharma’s growth drivers (India, Ryaltris, inhalers), Glenmark Life is not vital to Glenmark Pharma’s growth.
"With the inhaler franchise doing well in the European Union (EU), Ryaltris ramp-up and R&D (research and development) control, the path to profitability is unlikely to be affected," Nuvama said.
The brokerage firm has a 'hold' call on the stock with a target price of ₹830.
Nuvama expects a 12 per cent revenue and 19 per cent EBITDA dilution, but a 3 per cent PAT accretion in FY25 due to lower D&A (depreciation and amortization), interest savings and minority interest.
"The deal will turn Glenmark Pharma into net cash after years of struggle, resulting in significant savings in interest costs and freeing up cash to pursue growth in complex products. Glenmark Pharma will turn net cash of about ₹2,700 crore post-deal but before settlement payouts," said Nuvama.
On the other hand, Motilal Oswal Financial Services has a 'neutral' view of the stock with a target price of ₹780.
"We continue to value Glenmark Pharma at 14 times 12-month forward earnings to arrive at a price target of ₹780. We reiterate our neutral stance on the stock," said Motilal.
Motilal said the stake sale removes the debt-related concern for Glenmark Pharma. It would have additional cash to recalibrate the innovative pipeline and improve the branded generics business.
However, Motilal added that Glenmark Pharma would be earnings neutral as the brokerage firm believes the net reduction in EBITDA from API business ( ₹550 crore) would be offset by a reduction in interest cost and higher other income.
Motilal pointed out that new launches, market share gains, and inflation-linked upward revisions in prices of products under NLEM are expected to sustain the growth momentum of Glenmark Pharma. The brokerage firm expects a 10 per cent CAGR in DF (domestic formulation) sales to ₹4,870 crore over FY23-25.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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