D-St unimpressed with Ipca Laboratories’ acquisition decision; stock tumbles to 52-week low

Shares of IPCA Laboratories fall over 8 per cent on Tuesday, April 25 after the company inked a pact to acquire a 33.38 per cent stake in Unichem Laboratories from one of its promoters for Rs 1,034.06 crore.

As per a share purchase agreement, Ipca will acquire 2,35,01,440 shares of Unichem from one of its promoters at a price of Rs 440 per share aggregating to Rs 1,034.06 crore, the companies said in a joint statement, informed through a regulatory filing.

“lpca Laboratories Limited (lpca) (NSE : IPCALAB; BSE : 524494) today announced that the company has entered into a definitive Share Purchase Agreement (SPA) for the acquisition of 2,35,01,440 fully paid-up equity shares of Rs. 2/- each,· constituting 33.38% of the paid-up equity share capital of M/s. Unichem Laboratories Ltd. (Unichem) (NSE · : UNICHEMLAB; BSE : 506690), from one of its promoter shareholders at a price @ Rs. 440/- per equity share aggregating to Rs~ 1034.06 crores,” the regulatory filing read.  

Last seen, shares of the pharmaceutical company traded 8.09 per cent lower on NSE at Rs 759.6 apiece, and on BSE the scrip quoted at Rs 761 apiece.

Why did IPCA stock fall?

According to Zee Business Research, the stock is under pressure as Unichem Laboratories’ 80 per cent business comes from exports from the US while IPCA Laboratories’ business is domestically driven.

The research further adds that Unichem Laboratories’ financials are not strong and IPCA’s high-margin domestic business will reduce from 45 per cent to 37 per cent post-acquisition. IPCA will also have to borrow money for the acquisition which will increase the company’s debt.

According to analysts, Unichem Laboratories has a history of negative USFDA observations which could have a negative impact on IPCA Laboratories.

“We believe IPCA’s acquisition of a majority stake in Unichem labs is earnings dilutive, as in the near term it will impact the overall margins of IPCA, post-integration.  Also, Unichem Labs have a history of negative USFDA observations; currently, three of its plants are under import alert,” said Unnati Jadhav, Research Analyst – Pharmaceuticals at Sharekhan by BNP Paribas.

She added premium valuation paid for Unichem’s acquisition coupled with likely earnings dilution in the medium term, overshadowed the long-term positives.

On the technical front, in the past 18 months, the stock has declined 46 per cent and is trading below all key moving averages, according to Jigar S Patel, Senior Manager - Technical Research Analyst, Anand Rathi Shares and Stock Brokers.

What do analysts recommend?

Sharekhan has recommended holding the shares of IPCA Laboratories while Anand Rathi does not advise fresh longs as they expect the stock to touch Rs 700 levels in the near term.

IPCA Laboratories' share price history

On a year-to-date (YTD) basis, the shares of IPCA Laboraties have declined over 8 per cent as compared to Nifty50’s dip of over 2.51 per cent. In the past six months, the stock has declined over 18 per cent as compared to the headline index’s rise of 0.48 per cent.

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