Mega Deal Alert: Torrent Pharma Targets Cipla Acquisition
In the world of pharmaceuticals, a seismic shift is on the horizon as Torrent Pharmaceuticals, India’s seventh-largest pharmaceutical company by market capitalisation, sets its sights on acquiring Cipla, a giant three times its size. This prospective acquisition could mark one of the most significant pharmaceutical deals ever witnessed in India. Let’s delve into the details of this potential mega deal and its potential implications for the pharmaceutical landscape.
Cipla’s Succession Challenge
Cipla, with its roots dating back to 1935, has been traditionally led by the Hamied family. However, the company now grapples with the critical issue of succession planning. The Hamied family’s interests have diversified beyond the pharmaceutical industry, necessitating a clear leadership plan for the company’s future.
The Hamied Family’s Exit Strategy
As part of its strategic shift, the Hamied family, Cipla’s promoters, have expressed their intention to sell their substantial stake of 33.47% to a strategic investor.
Following this primary sale, a mandatory open offer for an additional 26% stake will ensue, potentially giving the acquirer an approximate 59% controlling stake in Cipla.
Torrent’s Ambitious Ascent
Torrent Pharmaceuticals, known for its history of growth through acquisitions, emerges as a prominent suitor for Cipla. Currently, Torrent ranks as the seventh-largest pharmaceutical company in India in terms of market capitalization, while Cipla claims the third spot. Torrent sees the acquisition as a strategic move to expand its footprint into new markets and diversify its product lines.
| Torrent Pharma | Cipla | |
| Total Revenue | 9620 | 22753 |
| India Sales | 4985 | 9868 |
| US Sales | 1162 | 5908 |
| EBITDA | 2842 | 5027 |
| EBITDA Margin | 29.50% | 22.10% |
| RoCE % | 20.30% | 18.20% |
Source: The Economic Times, Kotak Institutional Equities, Ace Equity
The Pros and Cons of a Potential Cipla-Torrent Deal
- On the positive side, Cipla’s strong presence in the US and South African markets can provide Torrent with the opportunity to expand its foothold.
- Additionally, Torrent aims to bolster its product portfolio, particularly in respiratory, anti-infectives, urology, and antivirals, where Cipla has a strong presence.
- This strategic move could catapult the combined Torrent-Cipla entity among the top three players in six key therapy areas in India.
The combined entity of Torrent and Cipla could rank among the top 3 players in 6 key therapies in India
| Therapy | Torrent’s Sales | Torrent’s Rank | Cipla’s Sales | Cipla’s Rank | Combined Entity Sales | Combined Entity Rank |
| Cardiac | 1853 | 2 | 1199 | 5 | 3051 | 1 |
| Anti-infectives | 196 | 20 | 1589 | 4 | 1785 | 4 |
| Gastrointestinal | 1198 | 4 | 646 | 8 | 1844 | 2 |
| Anti-diabetic | 557 | 9 | 386 | 12 | 943 | 6 |
| Respiratory | 21 | 28 | 4020 | 1 | 4041 | 1 |
| Dermatology | 435 | 7 | 340 | 11 | 775 | 3 |
| Neuro/CNS | 975 | 3 | 344 | 5 | 1318 | 3 |
| Urology | 39 | 16 | 485 | 2 | 525 | 1 |
Source: The Economic Times, IFL Securities
However, the acquisition poses significant financial challenges for Torrent. The estimated cost, nearly ₹60,000 crores, necessitates substantial funds. Reports suggest that Torrent may resort to raising funds through debt or equity dilution, potentially stressing its balance sheet for an extended period.
Competition in the Mix
Torrent Pharma isn’t the sole contender in the race to acquire Cipla. Reports also indicate that Blackstone, a private equity firm, is considering a bid for Cipla. At one point, Dr Reddy’s Laboratories was rumoured to be interested as well.
As the saying goes, “Only time will tell.” The future buyer of Cipla remains uncertain at this point. However, if Torrent Pharmaceuticals secures the deal, it could usher in a formidable pharmaceutical powerhouse with the potential to reshape the industry landscape.
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