Torrent Pharma has entered into an agreement to acquire 100 per cent of Curatio Health Care (backed by Sequoia and Chryscapital) for ₹2,000 crore (USD 245 million). The deal is expected to be completed within a month.
Curatio is a cosmetic dermatology-focused company with 50 brands marketed to paediatricians and dermatologists in India and abroad. The target company had sales of ₹224 crore in FY22 with top-line growth of 13 per cent CAGR in FY20-22, and Curatio’s top ten brands accounted for 75 per cent of revenues.
The acquisition of Curatioi s priced at an EV/sales of 8.4 times (FY22 sales) or 6.8 times FY23 estimated sales., and is at a premium to Torrent Pharma’s (currently trading at six times last 12 months sales) multiple. Torrent Pharma had acquired domestic portfolios of Elder Pharma in 2013 (₹2,000 crore priced at 4.8 times sales) and Unichem in 2017 (₹3,600 crore at 4.2 times sales) in similar-sized deals. A significant part of Torrent Pharma’s current valuation results from the successful turnaround of these acquisitions. With the recent purchase at a premium, Curatio deal synergies will have a higher benchmark to clear.
The deal synergies will be based on expanding the geographic reach currently limited to West and South India and operational leverage (distribution, shared management and optimised sales force) provided by Torrent Pharma, apart from the business scope. The company can leverage the acquired sales force of 600 MRs (medical representatives) with new launches as well. Curatio’s gross margins are similar to Torrent’s India business, while EBITDA margins (27 per cent in FY22) are marginally lower.
Torrent Pharma is ranked 21st in the derma segment but is in the top 10 in cardiac, gastro-intestinal, CNS (central nervous system), pain and VMN therapies in India and in overall rankings. With the acquisition, the combined portfolio of Curatio (ranked 18th) and Torrent will power the company to the top-ten league. Dermatology as a market is also growing at 1.6 times Indian Pharmaceutical Market (IPM) growth, as reported by the company.
Torrent Pharma’s sales force productivity at ₹10 lakh+ per month per MR is amongst the highest in the industry. While Curatio’s differentiated portfolio has shown strong growth of 25 per cent YTD, the sales force productivity (₹224 crore sales with 600 MRs) at .3x Torrent Pharma’s is lower and hence provides a large scope for turnaround (successfully executed at Elder and Unichem as well).
On the regulatory front, Curatio’s portfolio under NLEM (National List of Essential Medicines) price control is at 7 per cent and is similar to Torrent Pharma’s 9 per cent, much below 16 per cent for IPM’s. Curatio had also initiated tapping over-the-counter markets for its portfolio, which can be an additional lever for growth.
The acquisition will be made in cash, and the company’s current debt position is at 1.2 times net debt to EBITDA. But the company has a target of clearing a large part of its current net debt (₹3,400 crore) in the next two years with a repayment target of ₹2,000 crore. The acquisition will be financed by debt (75-85 per cent debt contribution) and will add ₹1,700-1,800 crore to the FY24-end net debt balance. The company plans to reach 0.4 times net debt to EBITDA by the FY25 end from further repayments.
Torrent Pharma may have strayed marginally from its value-based acquisitions with Curatio acquisition, which is at a premium. But the fast-growing segment does fill a gap in Torrent’s portfolio. Given the company’s track record in acquisition turnaround, Curatio portfolio should be a valuable addition to the company. We reiterate our accumulate call on Torrent Pharma given in bl.portfolio edition dated May 29., 2022.