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A lucrative acquisition

In line with its strategic intent, DRRD acquired Haleon’s global Nicotine Replacement Therapy (‘NRT’) OTC brands for GBP 500mn (2.3x sales) of which GBP 42mn is contingent consideration payable in CY25/26. This acquisition will help leverage customer relationships and give an opportunity to cross-sell. The management guided for better growth by reinvesting excess margins (beyond 25%). While the current growth trajectory is modest (mid-to-high single digit), it adds 8% to FY26 revenue and is EPS accretive (+4% to FY26e) for DRRD, in our view. The acquisition alleviates concerns around managing gRevlimid cliff. Recent initiatives like Nestle JV, biosimilars, innovation, licensing deals, etc. pinpoint towards DRRD’s focus on growing its new businesses. With domestic growth catching up with market growth and Haleon brand acquisitions enhancing ex-Revlimid EPS, we believe there is an opportunity to unlock value here. We maintain BUY with a revised Jun’25 TP of INR 7390.

* What is DRRD acquiring? DRRD signed a definitive agreement to acquire Haleon’s global non-US portfolio of Nicotine Replacement Therapy (‘NRT’) brands. The portfolio consists of Nicotinell (a global leader in NRT category) and local market-leading brands – Nicabate (Australia), Thrive (Canada) and Habitrol (New Zealand and Canada). It includes all dosage forms such as lozenges, sprays, patch, gum, etc. DRRD will also acquire a pipeline of assets. Nicotinell is the 2nd largest brand globally and is 4x the size of next player. DRRD’s will also acquire field force (after due consultation) but no manufacturing assets as it is made by CMOs.

* Deal Rationale: DRRD’s acquisition is in line with its strategic intent – OTC brands contribute ~10% to global revenues (US revenues: USD 140mn). There have been multiple acquisitions in this space over the last few quarters with Nestle JV being the most recent and prominent one. The key rationale for DRRD’s is (1) leverage customer relationships for better pharmacy access; (2) cross-sell products and build a bigger OTC portfolio. DRRD aims to grow this portfolio faster than its current single digit rate and believes it is margin accretive. The current concentration is in Europe (40%), other developed countries (20-24%) and bal. from others (like Brazil, etc.). As this was a nonfocus brand, DRRD’s can improve the growth by more aggressive promotion, penetration in Asian countries and new additions to portfolio. Since its an established consumer brand, it has a lot of pricing power. Recent initiatives include, JV with Nestle, acquisition of Habitrol, Doan’s, Premama and MenoLabs.

* Consideration and financial implications: DRRD will acquire the global consumer healthcare OTC portfolio for GBP 500mn (2.3x sales) of which GBP 42mn is contingent consideration payable in CY25/26. The deal is margin accretive and EPS accretive, in our view. This will add 8%/4% to Revenue/EPS in FY26. We expect the portfolio to grow in mid-to-high single digits. It is a cash generating asset acquired at a reasonable value and enhances ex-Revlimid EPS alleviating some of the concerns around post-Revlimid scenario.

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