Aurobindo Pharma Ltd.'s acquisition of Portugal's Generis Farmaceutica SA will enable the Indian drugmaker to speed up its profitability in the European Union, various brokerage houses said.
Aurobindo Pharma has inked a pact to acquire Portugal's Generis from Magnum Capital Partners for a consideration of €135 million (around Rs 969 crore), the company said in a filing to the stock exchanges on Monday. The deal will help Aurobindo become a top generics player in the Portuguese market, the filing added.
The deal valuations appear reasonable, analysts added, even as further details on the funding and synergies with the Portuguese company were awaited.
Portugal is one of Aurobindo's focus markets in the European Union (EU) along with France, Germany, Netherlands, Spain, U.K. and Italy. The announced deal, therefore, is in line with its stated guidance of margin expansion, ramp-up of own filings, and expansion into new Eastern European territories as the way forward for its European business.
The drug manufacturing company has been steadily expanding its European footprint since 2006. In 2014 it had acquired Actavis' commercial operations in seven Western European countries. In October last year, Aurobindo was said to have lost out to Intas Pharma after Intas emerged as the winner for Teva's UK, Ireland assets and operations.
Here's what brokerages had to say on Aurobindo's latest acquisition.
JPMorgan
- Retain ‘overweight' rating with price target of Rs 900.
- Europe margins have surprised positively so far and the guided over 200 basis point margin expansion for this asset should provide further upside.
- Expects diversified U.S. portfolio, earnings visibility and net debt reduction to narrow valuation discount versus other large caps.
Also Read: Aurobindo Pharma Rallies After Inking €135 Million Deal To Buy Portugal's Generis
Bank of America Merrill Lynch
- Retain 'buy' rating with a price target of Rs 1,010.
- The acquisition has been done at reasonable valuation.
- Expect payback period to be 8-9 years.
- Expect Aurobindo Pharma to fund the acquisition by raising additional debt.
Goldman Sachs
- Maintain ‘buy' rating with a price target of Rs 970.
- The Generis management has guided for a 11 percent topline growth, for the first time after three years, mainly on the back of new launches and resolutions of temporary supply chain issues in 2016
- The implied multiples for the proposed transaction are EV/sales (2017) of 1.9 times and EV/EBITDA (2017) of 8.5 times. Aurobindo Pharma is trading at 2.3 times FY18 EV/sales and 9 times FY18 EV/EBITDA, respectively.
- Expect estimated FY18 net debt/EBITDA to rise from 0.7 times to 0.9 times, assuming 100 percent debt financing for the transaction.
Motilal Oswal
- Retain ‘buy'rating with a price target of Rs 1,050.
- At 8.5 times 2016 and 2017 EV/ EBITDA respectively, deal value is reasonable.
- Debt is expected to remain under control; despite acquisition of businesses in Portugal and France, Aurobindo should end FY17 with net debt of $600 million (with net debt to equity of 0.55-0.6 times, at par with FY16.
- Recent weakness provides opportunity to ‘add' to existing positions.
- Expect valuation gap to narrow given the company's improving profitability, earnings growth trajectory and free cash flow.
Shares of Aurobindo Pharma were trading at Rs 700 at 12.00 noon after rising by as much as 4.7 percent to Rs 725 in opening trade.
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