Can acquisitions help Cipla beef up its portfolio?

“Cipla has to add best-in-class specialty generics, biosimilars and some novel products of acceptable quality in major markets,” said Viren Mahurkar, a London-based investment-banker with sector expertise.

The acquisitions are “to be carefully selected and seamlessly integrated to Cipla’s portfolio,” Mahurkar said. “While Cipla’s respiratory segment is strong, recent recall in the US is challenging.”

Analysts at Axis Securities also stated Cipla is looking for acquisitions opportunities. “It has deep pockets,” and “strong cash position,” they said in a recent report after an analyst meet with the company management.

Portfolio deepening in India, South Africa, North America and key regulated and emerging markets will strengthen Cipla, the report said.

In an interview with Australia’s Financial Review in November 2022, Umang Vohra, Cipla’s Global Managing Director, said that Australia was a key market as part of the wider expansion plans, including a few mid-sized acquisitions.

Buyout funds competing for Cipla promoter stake, according to news reports in India include Bain Capital, General Atlantic, Blackstone, CVC Capital Partners and Ahmedabad-based Torrent Pharma.

Any strategic or private equity buyer will find it challenging to generate a meaningful return on Cipla at current valuation, said Mahurkar. Hameids’ exit at $13 billion, he said, “is pretty unrealistic”.

If Cipla lowers its valuation expectations, several larger Indian companies and most larger blue-chip private equity funds will show interest, according to Industry experts.

A big segment of global buyers – Chinese pharma giants seeking international capabilities and high-quality management teams – are ruled-out due to geopolitical considerations.

Cipla has 1,500 products sold in over 80 countries. It is known globally for a humanitarian approach to healthcare.

At the turn of this millennium, it sold anti-retroviral drugs at $350 per patient while global pricing was $10,000 to $15,000. This triggered global price cuts. In 2012, it cut the prices of key cancer drugs around 75%. Once again, the competitors followed.

Yusuf Khwaja Hamied, Chairman, in a media interview, said Indian doctors link the quality of drugs to “the price of drugs; we want to remove that misconception.” Cipla was founded by his father Khwaja Abdul Hamied.

YK Hamied and his spouse Farida do not have children. Younger sibling M.K Hamied, non-executive Vice Chairman has three. A sale of entire promoter shares will trigger an open offer for the free float, about 66% outstanding.

Geojit BNP Paribas, a Kerala-based stock brokerage, revised their price-target for Cipla shares upwards to ₹1,450 in September. They also revised the revenue estimates for financial year 2024 from ₹25,321 crore to ₹28,475 crore. Capital expenditure, in analysts’ forecast, is likely to be 4% to 5% of revenue.

SBI Mutual Fund owns more than 4.6% equity in Cipla. HDFC Mutual Fund holds 3.6%, while Kotak Mutual and ICICI Prudential Mutual Fund own 1% each. Among large foreign-investors, Norway Sovereign-fund owns 2.7% and the Singapore Sovereign-fund, owns 1%.

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Updated: 23 Oct 2023, 07:35 PM IST