Torrent Pharma’s Curatio acquisition fails to enthuse D-Street; brokerages find it expensive
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The acquisition will add a field force of 600 medical representatives (MRs) and a distribution network of 900 stockists, Torrent Pharma said in a regulatory filing
Shares of Torrent Pharma fell 3.5 percent intraday on September 28, a day after the company announced that it is acquiring dermatology company Curatio Healthcare Private Limited for Rs 2,000 crore.
At 10 am, the scrip was quoting at Rs 1,479 on the National Stock Exchange, after hitting a low of Rs 1,448.
The acquisition will add a field force of 600 medical representatives (MRs) and a distribution network of 900 stockists, Torrent said in a regulatory filing. The consideration includes Rs 115 crore (on the date of signing) of cash and cash equivalents in the acquired business indicating an enterprise value of Rs. 1,885 crore, it added.
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“With this deal, Torrent Pharma will enter the league of top 10 players in the dermatology segment and will be the leader in the cosmetic dermatology space,” the company said.
Meanwhile, brokerages feel the deal is expensive. According to Credit Suisse, while the acquisition provides scale in the fast-growing derma segment, the cost is high at 23x FY23E EV/EBITDA. The global brokerage firm has an Outperform call with a target price of Rs 1,750 per share.
Citi also termed the deal ‘expensive’. It has a ‘Neutral’ rating on the stock with a target price of Rs 1,700 per share. “Curatio is a good strategic fit but it is expensive and earnings dilutive. It can turn out to be 9 percent/5 percent EPS dilutive in FY23/24. It may take 2-3 years to turn earnings accretive,” believes Citi.
Domestic brokerage firm Motilal Oswal has tweaked its EPS estimate for the company by -2 percent for FY24 to factor in the acquisition. “We reiterate our Neutral rating on its limited upside potential, with a target price of Rs 1,500,” it said.
In the financial year 2021-2022, Curatio’s reported revenue was Rs 224 crore. With YTD August sales up 25 percent, Curatio is expected to cross Rs 275 crore revenue in FY23.
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