Ipca Labs - Reviving U.S. Hopes Through Unichem Acquisition: Motilal Oswal

Motilal Oswal Report

Ipca Laboratories Ltd. is set to re-enter the U.S. generics market with the proposed acquisition of Unichem Laboratories.

Unichek’s formulation capacity (~13.2 billion tablets per annum) supported by U.S. food and drug administration compliant facilities should help Ipca funnel its product pipeline as well.

However, we believe the acquisition is expensive, given-

1. increased competition in the U.S. generics oral solids space,

2. rising regulatory risks,

3. strong efforts needed to turnaround Unichem, and

4. the valuation of ~2.3 times enterprise value/sales on trailing 12 months basis.

We await better clarity on various measures to be implemented by Ipca Labs to not only aid U.S. sales but also improve margins of Unichem business over the stipulated time.

Unichem acquisition details

Ipca Labs has entered into a definitive share purchase agreement to acquire 23.5 million shares (a 33.3% stake) of Unichem from one of the promoters at Rs 440 per share, aggregating to Rs 10.3 billion. The transaction will be funded through Ipca Labs’ retained earnings.  Subsequently, Ipca Labs will also make an open offer to acquire up to 26% stake at Rs 440 per share, aggregating to Rs 8 billion. The transaction is subject to approval from the Competition Commission of India.

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