Gland Pharma enters into agreement to acquire Cenexi; stock slips 5%

Shares of Gland Pharma slipped 5 per cent to Rs 1,787.55 on the BSE in Wednesday’s intra-day trade after the company entered into a Put Option Agreement to acquire 100 per cent of Cenexi Group for an equity value not exceeding Euro 120 million (Enterprise Value of Euro 230 million).

Gland Pharma will acquire Cenexi Group through its wholly owned subsidiary Gland Pharma International PTE. Ltd, Singapore.

Cenexi is primarily engaged in the business of Contract Development & Manufacturing Organisation (CDMO) of pharmaceutical products with expertise in sterile liquid and lyophilized fill-finished drug, including capabilities on oncology and complex products.

In CY21 Cenexi had annual sales of 184.1 million euros, with Ebitda of 23.1 million euros while in H1CY22 revenues stood at 100.1 million euros with Ebitda of 19.1 million euros. Ebitda is earnings before interest, tax, depreciation, and amortisation.

“Gland Pharma has a strategic focus on expanding its CDMO offerings in the European market and build a manufacturing presence in the market. The acquisition provides Gland Pharma access to leading know-how and development capabilities in sterile forms including for ophthalmic gel, needleless injectors and hormones,” the company said.

Gland Pharma’s ability to support future investments in expanding manufacturing footprint will help build Cenexi as a major CDMO player in the European market. Gland and Cenexi can leverage their long- standing customer relationships to generate synergistic benefit for both entities along with helping Gland enter the branded CDMO space.

According to Motilal Oswal Financial Services (MOFSL), given the generics product portfolio, the valuation is fair and in-line with peers in the space. The brokerage firm has raised its FY24 EPS estimate by 3 per cent to factor in additional business from Cenex.

“The ROE of the business is expected to be at 10 per cent on our assumption of CY22E sales/EBITDA/PAT of EUR 190 million/EUR 28 million/EUR 12 million, respectively. This return ratio is much lower than GLAND’s ROE of 16 per cent. Accordingly, we reduce the PE multiple to 28x from 31x on a 12-month forward earnings basis to arrive at a price target of Rs 2,470,” the brokerage firm said.

Also, the sharp correction over the past six months has made valuation attractive at 21x/18x FY24/FY25 earnings, respectively. Given the gradual improvement in the core business, we reiterate our Buy rating on Gland Pharma, MOFSL said.

In the past three months, the stock price of Gland Pharma has slipped 25 per cent, as compared to 5.4 per cent rise in the S&P BSE Sensex. Further, in the past one year, it has tanked 50 per cent as against 10 per cent rally in the benchmark index. The stock had hit a record low of Rs 1,660 on November 10, 2022. It had touched an all-time high of Rs 4,350 on August 12, 2021.