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Pricey Curatio acquisition; synergies to play out in FY25; Buy

One of the most expensive deals in domestic pharma, Torrent Pharma’s acquisition of Curatio Healthcare for Rs20bn values it at 8.8x EV/sales. The deal will widen Torrent’s reach among paediatricians and dermatologists (nearly 85% of its dermatology portfolio is cosmetic dermatology). The synergies from this deal should reflect in FY25, as well as the benefit from greater MR productivity and the expansion to the north and east zones. Interest costs and amortisation are expected to increase on the consummation of the deal (in a month). We retain our Buy on the stock, with an unchanged target price of Rs1,724 (at FY24e 19x EV/EBITDA).

Strong in cosmetic/paediatric derma therapies. Curatio is expected to clock Rs2.75bn revenue in FY23 (up 23% y/y) and 30% operating margins. With ~95% of its revenue coming from derma therapies, its top-3 brands, Tedibar, Atogla, Permite/Perlice (paediatric derma), generate over 50% of its sales.

Torrent to enjoy synergies from Curatio in the second year. Derma therapies now bring only 3% to Torrent. Curatio has a wide footprint among paediatricians and dermatologists; hence, cross-selling would be long-term beneficial. Synergies should reflect in FY25, as well as the benefit from greater MR productivity and the expansion to the north and east zones. Going by Torrent’s past acquisitions, it turn around Unichem’s MR productivity (prior to acquisition, Rs3m vs Torrent’s Rs6m in FY18) and margin improvement (15- 20% vs Torrent’s 22-25% in FY18).

Valuation. At the CMP of Rs1,495 the stock trades at 16.6x FY24e EV/EBITDA. We maintain a Buy rating on it, with an unchanged target price of Rs1,724 (19x FY24e EV/EBITDA).

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