Analysts upbeat on Torrent Pharma shares post Zyg Pharma acquisition

Market experts are bullish on the shares of Torrent Pharmaceuticals post the announcement that the company has acquired 100 per cent stake in India-based Zyg Pharma for an undisclosed sum.
 
Zyg Pharma, a part of Encore Group, is engaged mainly in contract manufacturing activities for dermatological drugs in different forms of dosages. It has presence across the globe and tie-ups with various international partners.

At present, Torrent Pharma has insignificant presence in the dermatology space. The drug major may bring the acquired product basket to the regulated market through own product filings.

Torrent had informed the stock exchanges about the acquisition on Wednesday, post market hours.

Speculation around the acquisition helped Torrent Pharma shares buck the negative trend on Wednesday. The stock gained 1.4 per cent to close at Rs 1,199.40 on the Bombay Stock Exchange, with benchmark index Sensex nosediving 722.77 points, or 2.63 per cent, to close the day at 26,717.37.

According to a research report by Sharekhan, even though Torrent has not disclosed the financial details of Zyg Pharma and the cost of acquisition, various other sources indicate that the company has an asset base of Rs 26 crore and is a profitable entity.

Torrent Pharma is funding the acquisition through internal accruals. The brokerage house believes the acquisition is earning accretive for the company as the acquisition of Zyg Pharma will help the company to expand its presence in the dermatology segment, which is growing fast and has a better margin profile.

Consolidated net profit and gross sales of Torrent Pharma grew 29.2 per cent and 20.3 per cent annually in the past five years till March 2014. For the year ended March 2014, the company registered consolidated net profit of Rs 663.91 crore against Rs 184.37 crore in 2008-09.

OUTLOOK

A research report by Sharekhan said, "Although we recognise the acquisition to be an earning accretive from day one, yet we prefer to maintain our earnings estimates at this moment, in absence of specific financial details of ZYG Pharma. We also maintain our buy rating on the stock with an unchanged price target of Rs 1,500." ," Sharekhan said in a research report.

Shares of Torrent Pharma were trading 0.14 per cent higher in late morning trade on Thursday.

According to a research report by Reliance Securities, the acquisition is in-line with the management's strategy to add new therapies in its product portfolio especially for US and EU. The brokerage house expects the acquisition to have cost Torrent around Rs 200 crore.

"It currently has cash balance of Rs 600 with debt-to-equity ratio of 0.9x in 2014-15E. The share price of Torrent will touch Rs 1,400 in the next few quarters," Reliance Securities said.