Ipca Lab slips 9%, hits 52-wk low on plan to buy 33.4% stake in Unichem Lab

Shares of Ipca Laboratories slipped 9 per cent to hit a 52-week low of Rs 751 on the BSE in Tuesday’s intra-day trade after the company's board of directors approved an acquisition of 33.38 per cent stake in Unichem Laboratories for Rs 1,034 crore from one of its promoter shareholders.

The stock of the pharmaceutical company has fallen below its previous low of Rs 768, touched on March 16, 2023. Meanwhile, shares of Unichem Labs were up 2 per cent at Rs 396 on the BSE in intra-day trade. In comparison, the S&P BSE Sensex was down 0.11 per cent at 59,990 at 09:29 am.

Ipca Labs said it has entered into a definitive share purchase agreement for acquisition of 23.5 million fully paid-up equity shares of Rs 2 each,·constituting 33.38 per cent of the paid up equity share capital of Unichem Laboratories from one of its promoter shareholder at a price of Rs 440 per equity share aggregating to Rs 1034.06 crore.

At 2.4x TTM FY23 sales, the deal seems a tad costlier given the lower profitability of Unichem's exports driven business, according to ICICI Securities.

"Ipca’s financial outgo would be around Rs 1800 crore after considering an open offer as well, which is a substantial outgo. On the bright side, Unichem owns around Rs 1,200 crore worth of gross block approved by global agencies with unblemished track record. We would wait for management commentary about possible synergies," the brokerage said in a note.

Meanwhile, Ipca is also making an open offer to the public equity shareholders of Unichem to acquire upto 26 per cent of the fully diluted outstanding equity share capital at a price at Rs 440 per share.

The business and product range of lpca and that of Unichem complements each other’s business and product range.

Ipca Lab is set to re-enter the US generics market with the proposed acquisition of Unichem Lab. Unichem’s formulation capacity (13.2 bn tablets per annum) supported by US FDA compliant facilities should help Ipca funnel its product pipeline as well, said Motilal Oswal Financial Services.

However, the brokerage believes the acquisition is expensive, given increased competition in the US generics oral solids space, rising regulatory risks, strong efforts needed to turnaround Unichem, and the valuation of 2.3x EV/sales on trailing 12M basis.

“We await better clarity on various measures to be implemented by Ipca to not only aid US sales but also improve margins of Unichem business over the stipulated time,” it said.

lpca is vertically integrated and produces finished dosage forms and active pharmaceutical ingredients (API). lpca is the 17th largest company in the Indian pharma market with leading brands in pain, rheumatology, anti-malarials and hair care therapy and 5 of its brands rank amongst the top 300 brands (IQVIA Feb 2023).

Unichem is an international, integrated, specialty pharmaceutical company. It manufactures and markets a large basket of pharmaceutical formulations as branded generics as well as generics in several countries across the globe, major markets being the US and Europe.