IPCA Labs shares fall to pandemic level lows as concerns over Unichem deal remain

Shares of IPCA Laboratories Ltd continued to tumble for a third day, falling as much as 7.3 percent on Wednesday, as concerns emerged over its acquisition of Unichem Laboratories Ltd.

The stock has fallen over 18 percent in the last three trading sessions after IPCA Labs announced on Monday that it had entered into a definitive share purchase agreement for acquisition of nearly 33.4 percent of the paid-up equity share capital of Unichem Labs for approximately Rs 1,034 crore.

At Tuesday's analyst meet, the management of IPCA Labs said that the Unichem acquisition is expected to be completed in 4-6 months. The company expects around Rs 1,800 crore of revenue and Rs 300 crore of Ebitda (earnings before interest, tax, depreciation and amortisation) from the acquisition over the next two years.

Further, IPCA Labs said that it would also work on new launches (about 10 abbreviated new drug application, or ANDAs, to be launched over next 12-15 months), increasing market share in existing products and synergies between the two firms, and rationalising research and development (R&D).

Unichem has a land parcel at Jogeshwari in Mumbai that can be monetized as well, noted IPCA Labs.

The company added that it had no plans to further increase stake in Unichem Labs after the open offer.

Post the Unichem acquisition, brokerage firm IIFL Securities maintained its ‘Add’ rating on the IPCA Labs stock, but revised its price target downwards to Rs 720 from Rs 840 earlier.

It said that the acquisition has raised capital allocation concerns for IPCA Labs. The deal would increase the company’s exposure to an inherently low-margin, low-return US/export business, it noted.

Shares of IPCA Labs are trading 6.7 percent lower at Rs 691.65. The stock is precariously close to its Covid-19 low of Rs 683.