In an important development, Aurobindo Pharma signed a definitive agreement on October 25, 2020 with New Mountain Capital and its affiliate Jarrow Formulas to sell its 'Natrol' business (wholly owned step-down subsidiary) as a going concern with related assets, liabilities, products, brands and employees for a cash consideration of US$550 million (Rs. 4048 crore). Net worth of the company as on March 31, 2020 was at US$82.41 million. The transaction is expected to be closed by January 2021 subject to customary closing conditions and regulatory approvals.
Valuation & Outlook
Natrol had annual sales of US$157 million (4.8% of consolidated sales) in FY20. Hence, this transaction values the business at 3.5x sales, a compelling deal by any standards. The company will utilise proceeds to reduce debt and other new strategic initiatives. We believe a significant portion of the company's current debt (Rs. 4777 crore as of Q1FY21) is working capital based. Therefore, a major portion of cash generated through this deal is likely be utilised for strategic investments. The sale of this non-core segment is likely to improve focus on new and complex ventures such as biosimilars, vaccines and complex injectables where capital requirements are higher and precise. Structurally, we remain positive on the company as it possesses one of the best, enduring generics ecosystems among peers (vertically integrated model, lower product concentration) to withstand volatility in the US and other generics space. We maintain BUY recommendation and ascribe a target price of Rs. 1025 valuing it 14x FY23E EPS of Rs. 73.3.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Aurobindo_CoUpdate_Oct20.pdf
Shares of AUROBINDO PHARMA LTD. was last trading in BSE at Rs.784.65 as compared to the previous close of Rs. 783.05. The total number of shares traded during the day was 283870 in over 8472 trades.
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