Brokerages give thumbs down to Torrent Pharma’s Curatio acquisition, stock tanks 6%

The decision to acquire Curatio Healthcare by Torrent Pharmaceuticals did not seem to go down well with market participants as is apparent from the stock’s performance. It tumbled 6 per cent during the early trade on Wednesday after the announcement of the all-cash deal.

The domestic pharmaceutical player announced its acquisition of Curatio Healthcare for Rs 2,000 crore to strengthen its presence in the dermatology segment. It has entered into a definitive agreement to acquire 100 per cent stake, the company said in an exchange filing.

Following the development, shares of tanked about 6 per cent to Rs 1,449.25, before inching up to Rs 1,482.70 at 10.05 am. The scrip had settled at Rs 1,533.60 on Tuesday.

Chennai-headquartered Curatio has a portfolio of over 50 brands, including Tedibar, Atogla, Spoo, B4 Nappi and Permite, in the cosmetic dermatology segment. Its top 10 brands account for around 75 per cent of total revenue.

Curation clocked a revenue of Rs 224 crore in FY22, with dermatology accounting for 82 per cent of the revenue. However, market analysts are not much upbeat about the acquisition owing to the pricey valuations of the deal, leading to downgrades.

Kotak Institutional Equities (KIE) said the deal is not a bargain. Despite Curatio’s healthy growth outlook, improving margin profile and Torrent’s robust track record of accruing synergies, the deal is pricey and is 5-9 per cent EPS dilutive over FY2023-25E, it argued.

“Torrent Pharma is trading at an elevated valuation of about 30 times FY2024E EPS, and we await a better entry point,” KIE added and downgraded to ‘reduce’ from ‘add’ with a lower fair value of Rs 1,515.

Global brokerage firm Citigroup, which remains ‘neutral’ on , said the acquisition can turn out to be 9-5 per cent EPS dilutive in FY23/24E EPS.

India has been growing at 16 per cent CAGR over the last 10 years. Sequoia-backed Curatio Health gets 65 per cent of its revenue from the top five brands, with a target price of Rs 1,700 on the stock.

Torrent Pharma’s India performance, lagging earlier, is now showing green shoots. The company recorded four consecutive quarters of double-digit growth aided by price hikes and launches, the brokerages said.

Torrent’s other businesses may recover

Brazil is set to clock mid-teens growth as launches gather pace; US under-recoveries are improving as price erosion ebbs while a potential clearance of facilities provides a fillip; and Germany business is recovering on the back of incremental tender wins starting H2, said .

However, Edelweiss has not integrated Curatio in its numbers yet, giving it a ‘buy’ call with a target price of Rs 1,760 on the counter.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)