Sharekhan has given Buy recommendation for Torrent Pharmaceuticals with a target price of Rs. 1730 in its research report issued on Sep 28, 2022
Sharekhan’s research report on Torrent Pharmaceuticals
Torrent Pharma (Torrent) has acquired 100% stake in Curatio Health Care (Curatio) for Rs. 2,000 crore (EV of Rs. 1,885 crore; valuation at 6.9x FY23E EV/sales); Curatio has strong focus on cosmetic dermatology (with 50+ brands). Curatio’s revenues are expected to grow by 18% in FY23 to Rs. 275 crore (with top 5 brands expected to grow by 22%) from Rs. 224 crore in FY22. EBIDTA margins are lower at 26% compared with Torrent at ~30%. However, the same is expected to improve in line with Torrent’s margins through efficiencies. Acquisition will be funded by a mix of debt:internal accruals (80:20). Acquisition will be earnings dilutive by 4-6% in FY2023/24 due to lower margins and high debt funding.
Outlook
Curatio acquisition will place Torrent among top 10 players in dermatology market in India. Thus, acquisition is long-term strategic fit but earnings dilutive in the near term. We maintain Buy with revised PT of Rs. 1,730.