Elder Pharma shares lost majority of the value it gained in the last three days after the company management announced sale of its domestic branded formulations business in India and Nepal to Torrent Pharmaceuticals for Rs 2,004 crore.
The stock gained 13.70% on the Bombay Stock Exchange (13.59% on the NSE) to Rs 324.85 between Tuesday and Thursday. It lost 8% and 8.17% at Friday’s close on the NSE and BSE, respectively.
The negative sentiment, analysts said, was largely attributed to Elder giving away its core India business comprising 30 brands including the largest selling calcium supplement Shelcal that contributes 32% to its domestic revenues, pain management (Chyromal holding 80% market share), wound care and nutraceuticals.
The transaction also involves transfer of employees engaged in sales, marketing and operations of the Indian business.
Post debt payment of Rs 1,300 core and taxes, analysts said, Elder would be left with cash of about Rs 400 crore and peripheral businesses that are not seen as profitable as the ones sold.
“The company is now left with three businesses viz. in-licencing which is doing well. The active pharmaceutical ingredient business is low-margin and finally exports to European nations. We will have to wait and watch how these businesses will fair for Elder going forward,” said Ranjit Kapadia, senior vice-president, Centrum Broking.
The stock touched an intraday high of Rs 349.30 and a low of Rs 287 on Friday on the NSE while Torrent on the other hand closed 4.36% lower at Rs 479.65 after touching a high of Rs 521.85 and a low of Rs 458.70.
On the valuation front, analysts said, Elder got a decent price despite a slump in sales and the fact that it has been trying to divest the domestic formulations business for over six months now. In fact, market reports had earlier said that Elder was in talks with French drug maker Sanofi SA and private equity major, Carlyle with valuations ranging between Rs 2,200 crore and Rs 2,400 core. The talks were called-off due to over valuation and other issues that sprung up during due diligence.
“The sale is positive for Elder considering business had been suffering owing to huge debt on the books and working capital issues. Besides, banks were also unwilling to lend. Keeping these circumstances in mind, the company management appears to have settled for a lower valuation,” said a pharma analyst.
Torrent will fund the acquisition through a combination of internal accruals and debt. The Elder brand portfolio is being seen by Torrent management as complementing its business considering it didn’t have presence in these therapeutic areas.
In fact, Kapadia is of the opinion Torrent’s marketing strength will yield better sales numbers than Elder’s, thus raking in significant revenues.
The stock hit, analysts said, was largely due to Elder giving away its core India business comprising 30 brands including the largest selling calcium supplement Shelcal.
On the valuations front, experts said Elder got a decent price despite a slump in sales and the fact that it has been trying to divest the domestic formulations business for over six months now.