Shares of IPCA Labs fell to a 52-week low on Tuesday, declining as much as 10 percent to Rs 742.25 after its Rs 1,034.06 crore deal to acquire a 33.38 percent stake in Unichem Laboratories.
The acquisition will be done from one of the promoter entities at a price of Rs 440 per share. The price is a 12.8 percent premium to Monday's closing price.
IPCA has also made an open offer to public shareholders of Unichem to acquire an additional 26 percent stake at the same price of Rs 440 per share.
Complementary businesses and product range is said to be the rationale behind this acquisition, which is subject to appoval from the competition Commission of India.
IPCA Labs will be funding this deal from the company's internal accruals.
Unichem manufactures and markets a large basket of pharmaceutical formulations as branded generics as well as generics in several countries globally.
The company's formulations manufacturing facilities are present in Goa, Ghaziabad, and Baddi, whereas the API manufacturing facilities are located at Roha, Pitampur and Kolhapur.
Unichem Laboratories had sold its domestic business in 2017 to Torrent Pharma for Rs 3,600 crore. Post this, the company only had its international business.
55 percent of Unichem's sales came from the US in financial year 2022.
The deal will give IPCA Labs access to regulated markets such as the US. However, three of the company's plants - the API plant in Ratlam, the formulations plant in Madhya Pradesh, and the Piparia plant in Silvassa, are under an import alert since 2015.
For the first nine months of 2023, Unichem Laboratories had a revenue of Rs 974.3 crore, an operating loss of Rs 28.64 crore and a net loss of Rs 157.96 crore.
One of the company's subsidiary - Niche generics has a pending fine from the European Commission, worth Rs 123 crore.
The deal has been done at around 2.5 times financial year 2022 price-to-sales, compared to expectations of 1.5 times sales.
While IPCA may get access to the US business but that will be margin dilutive.
"We both are well positioned to successfully integrate our product offerings and grow our businesses," said Premchand Godha, the Promoter and Executive Chairman of IPCA Laboratories.
Unichem Chairman & MD Prakash Mody said that IPCA is the ideal partner to take Unichem's business through the next phase of growth.
Unichem Laboratories was part of CNBC-TV18's dealing room chatter on April 5, where dealing room sources had mentioned a potential corporate development taking place in the stock soon. Shares of Unichem Laboratories had their best single-day performance in 16 months that day.
On the other hand, shares of Unichem Laboratories are off the day's high, currently trading 1 precent higher at Rs 391.85.
First Published: Apr 24, 2023 4:08 PM IST
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