What Rs 2,000 crore Curatio Healthcare deal means for Torrent Pharma

Torrent Pharmaceuticals has acquired Curatio Healthcare Private Limited for Rs 2,000 crores which is the most expensive deal among the acquisitions it has done in the past. This acquisition, the company has said, is expected to enhance the presence of Torrent Pharma in the cosmetic dermatology market and catapult its position from rank 21 to rank 10 in the segment.

Pharmaceutical analysts hold that the deal will play a significant role in the expansion of Torrent Pharma in various markets and positively impact its revenues in the near term. Curatio is a leading player in the cosmetic dermatology segment, having operations in India, Nepal, Sri Lanka, and the Philippines.

“We believe this acquisition is synergistic to Torrent’s domestic business. However, the acquisition is expected to be EPS dilutive on account of higher interest and depreciation or amortisation charges,” Vinay Bafna and Rohan John, analysts from ICICI securities said.

Curatio has a strong presence in the cosmetic dermatology segment with a portfolio of over 50 brands, marketed in India. Curatio’s portfolio consists of noted brands such as Tedibar, Atogla, Spoo, B4 Nappi, and Permite, which are ranked among the top 5 brands in their covered market. The top ten brands of Curatio account for around 75% of total revenue.

“We estimate revenue, EBITDA, PAT, and CAGR of 12.1%, 18.9%, and 32.0% over FY22-FY24E, respectively. We expect margins to improve by 350 bps over FY22- FY24E. Return on capital employed (RoCE) may improve to 16.2% in FY24E from 11.2% in FY22. The debt-equity ratio is expected to decline to around 0.4 by FY24E,” said Bafna and John.

“Our revenue and EBITDA estimates have increased by around 3% over FY23E-FY24E to factor in the acquisition. We are positive on the stock mainly due to its strong branded chronic franchise in both India and Brazil,” said the analysts.

Curatio’s reported revenue for FY21-22 was Rs 224 Crores. With year-to-date (YTD) August sales up 25%, Curatio is expected to cross Rs. 275 crores revenue in FY23. Dermatology accounts for 82% of Curatio’s revenue. Within dermatology, cosmetic dermatology is a leading contributor. Over the last decade, cosmetic dermatology as therapy has delivered an 18% CAGR which is 1.6 times the Indian Pharmaceutical Market (IPM) CAGR.

“The acquisition offers Torrent the opportunity to enhance its presence in dermatology with a differentiated portfolio and is a strong strategic fit. Curatio has built a commendable set of high market share brands in cosmetic and pediatric dermatology that we look forward to adding to our product offerings,” Aman Mehta, Director of Torrent Pharma said.

Torrent Pharma is present in the therapeutic segment of the cardiovascular, central nervous system, gastrointestinal (GI), and women's healthcare. The company also has a significant presence in diabetology, pain management, gynecology, oncology, and anti-infective segments.

Motilal Oswal in a report said that 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 pediatricians.

With this acquisition, Torrent said that it will also add a field force of 600 medical representatives (MRs) and a distribution network of 900 stockists.

“Further, Torrent Pharma can leverage its strength to market its derma portfolio in the North/East region, which remains untapped by Curatio. Also, considering 600 MRs, the MR productivity of Curatio at Rs 3 Lacs PCPM (per capita per month) is less than the industry average. Thus, there is significant scope for improving its representative productivity as well, thereby increasing the margins from the Curatio business. Having said this, the valuation is expensive, considering recent deals in domestic formulation space,” said the report said.

Torrent Pharmaceuticals Limited entered into definitive agreements to acquire 100% of Curatio Healthcare Private Limited for Rs. 2,000 crores on Tuesday. The consideration includes Rs. 115 crores (on the date of signing) of cash and cash equivalents in the acquired business indicating an Enterprise Value of Rs. 1,885 crores, as per the company.

Headquartered in Ahmedabad, Torrent pharma has an annual turnover of Rs. 8508 crore.

 

HSBC global research in a report said Torrent Pharma has a good track record of turning around acquisitions in the past for instance Elder portfolio. “...we believe it would likely take significant efforts and time to turn around Curatio brands in the current market environment (high competition, lack of portfolio differentiation, etc.,” said the report

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