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Friday, December 13, 2013

Torrent buys Elder's formulation biz for Rs 2Kcr; stks tank

Elder Pharma sank 8.2% after the firm announced the sale of its domestic branded formulations business to Torrent Pharmaceuticals for about Rs 2,000 crore.
Elder was looking to hive off assets in a bid to reduce its Rs 1,300-crore debt, and was also reportedly in talks with Sanofi earlier.
But the stock reacted negatively after it emerged the company had put its core business comprising key brands such as calcium-supplement Shelcal, among others, on the block.
As part of the deal, Torrent would acquire Elder’s Indian business that comprises of 30 brands in segments such as women’s healthcare, pain management, etc.
The deal, though, only transfers Elder’s brands along with the staff related to the sold business. The company will retain control of tangibles such as plant and facilities, and would continue to manufacture products for Torrent for a period of three years.
The sale helps address Elder’s recent challenges relating to debt and would help the firm deleverage its balance sheet, CMD Alok Saxena said. “We will now focus on growing our in-licensing, anti-infectives and exports business.
Analysts, however, pointed out that post payment of debt and taxes, Elder would only be left with cash of about Rs 400 crore and peripheral businesses that are not as profitable as the one it has sold.
Shelcal was a formidable brand and virtually the face of Elder Pharma , said Vikas Dandekar of Pharma Asia News. “Much of the Rs 2,000 crore [acquisition amount] is coming to Elder because of Shelcal,” he added. “There will be a bit of a negative sentiment about what is left with the company [after this sale].
In the 15-month period ending June 2013, Elder had clocked gross profits of Rs 157 crore on sales of Rs 1,233 crore. The company's market capitalization is around Rs 680 crore.
Good fit for Torrent
Sudhir Mehta, Chairman, Torrent Group, said the transaction was a strategic fit for Torrent and would strengthen its core prescription-based business. “The deal would also result in cost and revenue synergies in our existing domestic formulations business,” he added.
Torrent has a strong presence in Europe and Latin American markets with 55% of revenues from abroad, said analyst SP Tulsian. “They have a relatively small presence in the local market,” he added, pointing out that Elder has a strong domestic portfolio of brands such as Shelcal and Chymoral in India. “So this is a good deal for Torrent.
Torrent said it would fund the acquisition through a mix of internal accruals and bank borrowings.
Did someone get whiff of deal?
Another interesting angle behind the fall in the Elder stock is revealed from market data.
According to National Stock Exchange data, the stock went from Rs 288 to Rs 321 in the two days prior to the announcement of the deal -- an 11.5 percent gain.
The rise also came on the back of higher-than-normal trading in the stock with two-day traded volumes standing at 6 lakh shares, 15 times the average of 40,000 shares that were traded in the previous five-day period.
Torrent Pharma also closed the day lower.

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