News Update : Torrent to Acquire Indian Branded Formulations Business of Elder pharmaceuticals

We believe Acquisition can be beneficial to company in long run.

News lack clarity about loan portion to finance deal & possible impact on operating profit. Email send to company requesting for more details remained unanswered by the time this blog is written.

We have concerns
1.        Acquisition may be substantially funded by loan, considering company will need to deploy lot’s of cash for Dahej expansion & working capital.
2.        Elder pharmaceuticals standalone sales for Jun-13 & Sep-13 quarter was weak on year on year as well quarter on quarter basis.
3.        As mentioned “Acquisition of business on a slump basis….. Elder will continue to manufacture and supply the products at its existing facilities for Torrent for a period of three years.” Elder pharmaceuticals may act as contract manufacturer….all product profit may not accrue to Torrent

Announcement has mentioned acquisition will be funded by internal accrual & bank borrowing. Company may have chosen to fund acquisition partially by raising money via equity instrument and or making payment to Elder in intervals / performance linked payment.

In long run company may be greatly benefited by Dehej expansion as well as acquisition. But there are lots of concerns about profitability post acquisition. We advice to exit from stock till more clarification comes in or impact on profitability can be seen.

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