PI Industries derisks biz with lucrative pharma buys; stock up 10.2%

Brokerages have upgraded estimates for firm, expect return ratios to improve

The stock of agrochemicals major PI Industries was up 10.4 per cent after it announced the acquisition of a contract development and manufacturing organisation (CDMO) and active pharmaceutical ingredient (API) maker.

PI Health Sciences (PIHS), a wholly-owned subsidiary of PI Industries (PI), has executed definitive agreements with Therachem Research Medilab LLC (TRM). It is for acquiring TRM’s wholly-owned subsidiaries in India (TRM India and Solis Pharma Chem) and assets in the US. The purchase consideration for it is $50 million with an additional payment of up to $2.5 million in performance-linked payouts over the next six years.

The acquired company is a solutions provider in medicinal chemistry research, process research and development, specialising in the area of rare disease. It provides services and products to pharmaceutical and biopharmaceutical companies in the preclinical and clinical stages.

PIHS also executed a definitive pact with Plahoma Twelve GmbH for acquiring 100 per cent stake in Archimica S.p.A (Archimica). The purchase consideration for it is €34.2 million.

Archimica is an Italy-based small-molecule API manufacturer and a CDMO servicing over 60 marquee customers in more than 30 countries.

Archimica owns 24 US drug master files, manufacturing facility for APIs and intermediates across wide therapeutic and substance classes such as oncology, anti-ulcer, and anti-arthritis.

The Street is bullish on the acquisitions as the valuations are attractive and would be earnings accretive for the company.

Krishan Parwani of JM Financial Research said that Therachem was acquired at 5.4 times its FY22 enterprise value to operating profit (EV/operating profit), including milestone benefits, while Indian CDMOs/contract research organisations trade at 20-25 times their EV/operating profit.

The acquisition gives PI the capability to supply patented molecules to pharma innovators, similar to Navin Fluorine’s CDMO business.

Similarly, Archimica was acquired at 5.4 times its CY22 EV/operating profit. Indian generic API businesses trade at 8-10 times their respective EV/operating profit.

Achimica gives PI access to generic APIs along with building blocks and complex reagent manufacturing capabilities (involving fluorination in a few cases), said Parawani.

The purchase amount will be paid in cash and funded through qualified institutional placement (QIP) proceeds and internal accruals. Consummation of the transactions and integration into the corporate structure of PI is expected to be completed during Q1. This is subject to the fulfilment of customary closing conditions and regulatory approvals, the company said.

While the acquisitions should help the company enter the pharma segment, it should still have cash to fund its growth.

Rohit Nagraj and Jay Bharat Trivedi of Centrum Research said the multiple acquisitions resolve the long-standing overhang regarding PI’s pharma foray with access to Europe and the US market along with the manufacturing footprint.