Torrent Pharma is the most well-placed candidate to acquire the 33% promoter stake in India’s third largest pharma company CIPLA, edging out rival Dr Reddy’s Laboratories and private equity firms like Blackstone and Barings, said analysts from JM Financial
The current promoter, the Hamied family, is reported to be looking to offload their stake due to differences in the company’s succession bid.
CIPLA is one of the oldest pharmaceutical manufacturers in India, and any acquirer would end up with a dominant position in the Indian market, besides a strong footprint in lucrative markets like the US.
Over the last several weeks, media reports have indicated that the promoters are in talks with several firms such as Dr Reddy’s Laboratories, Blackstone and Barings about the stake sale.
"Torrent-Cipla makes logical sense to us,” said Jainil Shah of JM Financial, pointing out that the two entities’ minimum international overlap, and high cash-generating ability are a few added advantages.
The analysts noted that Torrent has a key advantage in the acquisition game as it has a long history of successful bolt-on acquisitions (Elder, Unichem, Curatio).
Moreover, Torrent’s product pricing is valued at a 30% premium compared to Cipla, which would provide an additional valuation comfort, the analysts noted.
Considering Cipla's current market capitalisation, this transaction would carry a substantial value of over $7 billion, making it the biggest deal in the Indian pharmaceutical sector.
While large mergers and acquisitions are often hard to digest given their near and long-term financial complexities, the analysts believe “Torrent could bring in aggressive cost-saving initiatives to enhance margins and eliminate structural inefficiencies.”
Other Suitors
Next in race is Dr Reddy’s Laboratories, however, the deal is less likely said the analysts keeping in mind Dr Reddy’s low-risk capital allocation strategy, its low promoter holding and similar margin profiles.
If the deal is done, “It will help meet Dr Reddy’s aspiration of improving its position in the IPM and also lift its domestic share to 30-31% of total revenue compared to its present revenue of 18-19% at present,” noted the analysts.
The deal would benefit Dr Reddy in terms of visible growth in its net cash, the report noted, adding that as of now, Cipla-Dr Reddy's combined net cash is already valued at Rs 100 billion.
“There is sufficient room for financial leverage. The international overlap is higher, relatively of course, but Cipla’s strong respiratory franchise could complement Dr Reddy’s sizeable US generic portfolio,” added the analysts.
As per media reports, private equities like Blackstone, Barings Asia, etc. are keen on buying a 33.47% promoter stake in Cipla.
However, a private equity takeover could mean a higher cost focus, exiting its low-profitable business and focussing on effective cash deployment for Cipla.
“Cipla’s rich valuation (26x FY26 earnings) could be a key deterrent, in our view,” said the analysts.