Torrent Pharma Vying for Hamied Family's Stake in Cipla: A Potential Leap Towards Becoming India's Second-Largest Drugmaker

Torrent Pharma is currently in the race to acquire Hamied family’s stake in Cipla. If successful, the company is likely to become the second largest drugmaker by revenue in India. The former company is planning on forming a consortium and has approached multiple companies for funding with advisory support from JP Morgan. Blackstone and Baring PE Asia-EQT are also among the potential buyers of the same.

Reportedly, Cipla is more than twice the size of Torrent pharma’s consolidated revenue in FY23, nearly 2.3 times the revenue and 1.46 times its market value. Torrent Pharma is expected to lead Sun Pharma in reference to formulations business if the deal goes well. Torrent Pharma is in conversation with multiple lenders and is willing to make an all-cash transaction. YK Hamied and MK Hamied have played crucial roles in Cipla for several years in the development of the company as the second-generation founder family of Cipla. The Hamied family owns a stake of 33.47% in the company as promoters. This promoter stake value presently is alleged to be estimated at INR 32,988.9 Crores (USD 3.97 billion). However, the sellout is expected to trigger an open offer for a complimentary 26% of the company share which ultimately will result in ownership of as much as 59.4% of Cipla. 

With all the merger and acquisition (M&A) initiatives in the past few years across the globe, India has appeared as an emerging market and a dominant region. This includes the acquiring of Curatio, Unichem, and Elder Pharma by Torrent Pharma. The current EBITDA margin profile is also driving the current value of 29.5%, majorly due to the profitable domestic business. As per the analysts, the margins are likely to rise upto 31-32% in the next couple of years. It has been made very clear by Aman Mehta, Director of Torrent Pharma, that M&A approaches will remain the key priorities for business growth in the coming years. 

Torrent Pharma is placed on number six on the list of major pharmaceutical companies in India with a share of 3.6%, where Cipla is on number four with a share of 5.1%, as per MAT July 2023, according to AWACS. Torrent has a strong presence in areas such as vitamins, minerals, cardiovascular, central nervous system, and gastrointestinal (GI). Cipla is a leader in respiratory medicines and is placed on number two in urology medications with a powerful presence in anti-infectives and cardiac medications. The deal is also expected to result in the growth of the trade generics business and consumer health. Nearly 44% of Cipla’s sales are generated from India and nearly 52% of Torrent, with 15 brands making Rs 100 crores per annum sales. Cipla runs more than 20 brands crossing INR 100 crore in Indian Pharma Market (IPM). 

“For Indian players, there might be too much of a portfolio overlap in India for this to make sense. In the domestic market, Cipla operates in multiple therapy areas and these players will likely have significant overlaps which would destroy value,” stated Nithya Balasubramanian of Bernstein Research.

In comparison to Torrent Pharma, Cipla is exhibiting a robust presence in the US market with an expected USD 210-USD 215 million revenue rate per quarter. On the contrary, Torrent makes around USD 35 million per quarter, on average. Cipla is the third largest drug maker in South Africa. In Germany, Torrent is the fifth largest and number one in Brazil and Philippines as an Indian drugmaker.