Torrent Pharma joins race to acquire stake of Cipla promoters: Report

In what could be a significant change in the pharma sector in India, Ahmedabad-based Torrent Pharma is likely to enter the race to acquire the Hamied family's stake in Cipla, a report said on Wednesday.  

With this, Torrent Pharma will directly compete with bigwigs like Blackstone and Baring Private Equity Asia-EQT. Torrent has hired JP Morgan to work on the deal, the Economic Times reported.  

Earlier it was reported that company promoters are in talks with some major PE firms and have hired an investment bank to advise it on the deal with prospective buyers -- Blackstone, Baring Asia, among others. But the company had issued a clarification denying the development. At present, the promoters of Cipla, Hamied family, own a 33.47 per cent stake in the company. 

A successful deal will take Torrent Pharma to the second-largest company by revenues in India. In domestic formulation business, it will overtake market leader Sun Pharma. Cipla's revenue in financial year 2023 is more than double that of Torrent Pharma. 

The report said that Torrent has been talking with multiple lenders for funding and is keen to make an all-cash offer. Work has intensified in the past month, sources quoted in the report said. 

As per the reports, the promoter's stake in the company could be valued at $3.97 billion. But going by the tageover rules and open offer dynamics, the new potential owner may have to pump in $7.06 billion for a 59.47 per cent stake. 

Since the news of the potential sale surfaced last month, shares of Cipla have surged over 16 per cent in a month. 

In India, Torrent is ranked number six in the Indian pharmaceutical market with a share of 3.6% and Cipla is number four with a share of 5.1%, as per MAT July 2023, according to market research firm AWACS. 

Cipla’s market capitalisation is around Rs 99,131.91 crore. Cipla saw a healthy growth across its key India, the US and South Africa markets, during the first quarter ended June 30, 2023. The company posted a net profit of Rs 995 crore, up 45 per cent. 

In Q1 FY24, income from operations grew 17.7 per cent YoY at Rs 6,329 crore. On a sequential basis, the company’s revenue grew by 10.2 per cent while PAT growth was 40.6 per cent. Cipla said strong growth in its India business - prescription, trade generics and consumer health arms - over last year has boosted revenue. 

In Q1 FY24, the company recorded growth of 18 per cent over last year with earnings before interest, taxes, depreciation, and amortization (EBITDA) of Rs 1,494 crore driven by mix and other operational efficiencies. Its core operating profitability continues to be strong at 23.6 per cent expanding by 230 bps over last year. 

For FY24, Cipla raised its EBITDA margin guidance to 23 per cent from 22 per cent earlier. The management guided capex is at 4- 5 per cent of revenue (Rs 1,000 - 1,050 crore). 

Shares of Cipla are up 0.58 per cent at Rs 1,228.20, while those of Torrent Pharma stock was down 2.8 per cent in opening and was trading at Rs 1,936.05.

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