Pharma stock trading near 52-week high. Here’s what Jefferies suggests

“Assuming a deal value of ₹21 bn, we estimate the deal would take 400 bps off FY24 ROCE. Curatio’s largest brand has clocked just mid-single-digit revenue CAGR in FY18-22, and most of its portfolio is in the derma category, which added just around 3% to Torrent’s FY22 sales,” the note stated.

Torrent Pharma has been leveraging its balance sheet to pump up its P&L through acquisitions, but this has hurt its RoCE, which has dropped from 36% in FY14 to 17% in FY22. If the Curatio deal goes through at a price of ₹21 bn, Torrent’s FY24 RoCE will decline from 24% to 20%, as per Jefferies’ estimates.

The brokerage house has Hold rating on Torrent Pharma shares with a base care target price of ₹1,484 apiece and a potential upside scenario target price of ₹1,827. The pharma stock is trading near its 52-week high level of ₹1,652 that it had hit in December last year.

“News flow regarding pharma deals in India remains strong, and per recent media articles, Torrent Pharma is set to acquire Curatio Healthcare in a deal valued at ₹21 bn. Torrent has neither confirmed nor denied the news. Curatio Healthcare is an Indian manufacturer of derma, gynaecology and pediatric products. FY22 sales for the company were ₹2.4 bn with operating profit of ₹0.6 bn. The company has over 700 distributors covering over 6,000 doctors,” it said.

Headquartered in Ahmedabad and part of the Torrent Group, Torrent Pharma is one of the leading pharma companies in India with presence in in therapeutic segment of cardiovascular (CV), central nervous system (CNS), gastro-intestinal (GI) and women healthcare (WHC), diabetology, pain management, gynaecology, oncology and anti-infective segments.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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