MOSL: TORRENT PHARMACEUTICALS (Neutral)-Entering big league through this acquisition-High interest cost a concern

​Torrent Pharmaceuticals: Entering big league through this acquisition; High interest cost a concern

(TRP IN, Mkt Cap USD3.4b, CMP INR1315, TP INR1400, 6% Upside, Neutral)

Big leap- to become top-5 player: Torrent has entered into a definitive agreement with Unichem to acquire its branded business of India and Nepal for INR36b on slump sale basis (transaction closure expected by 2017 end). Through this acquisition, Torrent will acquire >120 brands in India and Nepal and manufacturing plant at Sikkim.

Building leadership position through strings of acquisitions: This is the fifth acquisition in India by Torrent pharma in last 4 years (Brands from Elder and Novartis, manufacturing plants from Zyg Pharma and Glochem). According to IMS, Torrent will be ranked 5th in terms of secondary sales in Indian Pharma Market post this acquisition (According to AIOCD- Torrent’s Rank will move from 13th to 8th). Torrent’s market share in IPM will move from 2.4% to 3.4%.

Complimentary therapy focus: Cardiac, Neuro, GI & anti-infective accounts for 84% of domestic top-line for Unichem. Except anti-infective, all other three therapy areas are also the top-3 therapies for Torrent. Torrent’s market share in Cardio, CNS & GI will increase to 8.6% from 5.6%, 8.4% from 6.4% and 3.9% from 3.1%, respectively. Top 50 brands for Unichem contribute ~80% of top-line. Unichem’s Losar brand is >INR2b whereas 3 other brands including Unienzyme, Ampoxin & Telsar are >INR500m brand.

Entry into OTC segment: Torrent will also enter into OTC market through this acquisition. Unienzyme is an established brand with sales of ~INR600m.

Strengthening on the ground presence: Torrent will add 3,000 employees through this acquisition. Also distribution reach will get extended by ~2,000 stockists.