betapharm's acquisition by dr reddy's lab
TRANSCRIPT
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Dr. Reddy’s Labs acquires Betapharm for $ 560mn.
Mumbai.
In what is seen as India Inc’s first major M&A in pharma sector, DRL acquired 100% stake in Germany based Betapharm for $560mn. The stock closed a whopping 9.3 % up on the news.
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- The Acquirer
• Among the largest domestic pharma companies in India
• Annual turnover of over INR 4900 Cr.• Annual PAT of INR 438 Cr.• Approved by USFDA, MHRA (UK)• Formulations make 37% of company’s product
mix; generic products account for 13%
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- The Target
• Fourth largest generic pharma company in Germany
• EBITDA margins between 24 – 26%
• Portfolio of over 145 products
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Valuations
• Sticker Price of €480 mn. from PE firm 3i• Revenues of € 165 mn.• 2.9X revenues and 12X EBITDA• The transaction was funded using a combination
of DRL’s internal cash reserves and committed credit facilities
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The Goodies Access to lucrative German generic drug
market Enhanced portfolio DRL is likely to leverage its product
development skills and low-cost manufacturing in India to boost Betapharm’s EBITDA margins
Help DRL realize its ambition of becoming a US$1 billion mid-size global pharmaceutical company by 2008
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Strategy
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A Sweet Pill ? With assumptions and available industry data,
ICICI did a quick NPV valuation of Betapharm and arrived at a value of €550-560 million assuming WACC of 12% and a sustainable growth rate of 5%. The payback period was seen to be 6-7 years.
The deal was seen as an Accretive Acquisition.
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Stock jumps on acquisition news
correction in prices
BSE Code - 500124 Face value - Rs. 5.00Promoter holding- 26.40%52 week H/L – 739(16 June 08)/387(18 Nov 08)
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Particulars 2005-06 2006-07 2007-08
Sales (in Rs. Cr.) 2,095.51 3,828.04 3,330.66
Cost of Sales(in Rs. Cr.)
1,686.19 2,455.91 2,761.19
PAT (in Rs. Cr.) 211.12 1,176.86 475.22
EPS( in Rs.) 27.53 70.09 28.26
OPM % 12.61 31.69 15.06
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Side Effects
• Betapharm booked FY losses in ’08, ‘09• Raw materials problems in Mexico• Absence of upsides (revenues arising out of
marketing exclusivity of authorised generics)
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Present Scenario
• Betapharm contributing INR 2.6 bn. • New launches seem to have helped Betapharm
improve its performance compared to that in Q1 ( 20 more in pipeline)
• It was impacted due to price cuts (upto 20%) and stock adjustments.
• Fierce competitive bidding from various generic companies has increased the acquisition cost for DRL and extended the payback period
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A case of wrong prescription?
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“We see our investment in Betapharm as a key strategic initiative towards becoming a mid-sized global pharmaceutical company with strong presence in all key pharmaceutical markets. Betapharm has created a strong growth platform and is well positioned for the future and we are looking forward to partner with them in building a strategic presence in Europe."
- Dr. K. Anji Reddy,
Chairman,
Dr. Reddy's Laboratories Limited
(In March 2006)
Message From The Chairman
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Sources
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GET WELL SOON