Why Ipca Laboratories’ stock slipped 10% after Unichem acquisition

Ipca has also made an open offer to Unichem shareholders to acquire up to 26% stake amounting to ₹800 crore.

Analysts cited the deal’s expensive valuations and challenging market outlook for Unichem as primary concerns.

 “We believe the acquisition is expensive, given 1) increased competition in the US generics oral solids space, 2) rising regulatory risks, 3) strong efforts needed to turnaround Unichem, and 4) the valuation of about 2.3 times EV(enterprise value)/sales on trailing 12 months basis,” said analysts at Motilal Oswal Financial Services in a report on 24 April. 

Despite Unichem’s revenue rising by 4.8% CAGR (compound annual growth) from FY20-22, the company reported a net loss of Rs158 crore in the nine months ended December. The acquisition may negatively impact Ipca’s earnings, at least in the near term. However, there are some bright spots in the deal. 

“Unichem’s formulation capacity (about 13.2 billion tablets per annum) supported by US Food and Drug Administration compliant facilities should help Ipca funnel its product pipeline as well,” said the Motilal Oswal report. Moreover, the business and product range of Ipca and Unichem complement each other, said the companies.

Ipca’s strategy to boost US sales and Unichem’s profitability remains uncertain, with analysts awaiting clarity on measures to be implemented. “We await better clarity on various measures to be implemented by IPCA to not only aid US sales but also improve margins of Unichem business over the stipulated time,” said Motilal Oswal analysts.

Additionally, Ipca’s commentary on active pharmaceutical ingredient opportunities in the upcoming March quarter results will be crucial.

That said, Ipca’s strategy to improve US sales and profitability of Unichem business remains to be seen. “We await better clarity on various measures to be implemented by IPCA to not only aid US sales but also improve margins of Unichem business over the stipulated time,” said Motilal Oswal analysts.

After accounting for Tuesday’s drop in share price, the Ipca stock is down by nearly 28% from its 52-week high of Rs1037.45 apiece seen in May.