Torrent Pharma to acquire Curatio Healthcare for Rs 2,000 cr; stock down 6%

ICICI Securities is positive on Torrent's ability of faster integration and turnaround of acquired assets in the domestic space

Shares of Torrent Pharmaceuticals dipped 6 per cent to Rs 1,449 on the BSE in Wednesday's intra-day trade after the drug company, on Tuesday, signed a definitive agreement to acquire cosmetic dermatology player Curatio Healthcare for Rs 2,000 crore. The consideration includes Rs 115 crore of cash and cash equivalents in the acquired business, indicating an Enterprise Value of Rs 1,885 crore.

Curatio has operations in India, Nepal, Srilanka, and Philippines. The deal catapults Torrent from the 21st spot in the domestic dermatology market to the tenth spot.

Curatio's portfolio consists of leading brands such as Tedibar, Atogla, Spoo, B4 Nappi, and Permite, which are ranked amongst top 5 brands in their covered market. Top ten brands of Curatio account for around 75 per cent of total revenue. Financially, Curatio's revenues have grown at a CAGR of 13 per cent in FY20-22, and are expected to grow 23 per cent in FY23 to Rs 275 crore.

Torrent Pharma, meanwhile, is a specialty-focused company with 74 per cent plus of its revenue in India from chronic & sub- chronic therapies. The transaction is subject to conditions precedent and is expected to close within one month, the company said.

"Despite the steep valuation of this deal, it offers Torrent an enhanced presence in dermatology with differentiated portfolio in cosmetic dermatology being more specialist focus, matching with Torrent's current DNA," ICICI Securities said in a note.

EBITDA margins of around 27 per cent in FY22 for Curatio are slightly lower than Torrent's domestic margin but is likely to inch up due to better operating leverage post this acquisition. "We are positive on Torrent's ability of faster integration and turnaround of acquired assets in the domestic space, and expect the near-term margin dilution in H2FY23, due to this deal, to be largely offset by dwindling inflationary environment, and change in revenue mix towards branded generics," the brokerage firm said.

"While the acquisition will help with the company’s portfolio expansion and widen its reach to dermatologists/paediatricians, the deal valuation is expensive at 6.8x EV/ FY23 sales, 22.4x EV/FY23 EBITDA basis," said those at Motilal Oswal Financial Services.

Considering Torrent Pharma has had minimal exposure to the dermatology segment (2 per cent of Domestic formulation sales; DF), the acquisition would not only increase its offerings, but also widen its scope by connecting with dermatologists and pediatricians, the brokerage firm said.

At 09:25 AM, the stock of Torrent was trading 4 per cent lower at Rs 1,479, as compared to 0.95 per cent decline in the S&P BSE Sensex.