Aurobindo Pharma’s Stock Price Unaffected By Acquisition Plans

Aurobindo Pharma has reported that it is acquiring two companies. The market however did not seem to be very enthusiastic about these announcement, and the stock has remained flat since yesterday’s (September 12, 2013) closing.

During the recent AGM, the management has approved buying 25 per cent share capital in Silicon Life Sciences (SLS). Speaking to DSIJ, they said that SLS would undergo US FDA inspection at some point in the future and the produce from this unit would be used as a feed-in material for Aurobindo’s API facilities. However, there would not be any direct revenue impact on Aurobindo’s financials. The company already holds 75 per cent stake in SLS. It is acquiring the remaining 25 per cent stake to fully consolidate the operations of the two.

The other company, viz. Hyacinths Pharma is a start-up based in Andhra Pradesh. Hyacinths Pharma does not have any factory setup at the moment, but has the necessary approvals for one. Aurobindo will have to set up a new factory. The location is very close to one of Aurobindo’s API manufacturing facilities, hence logically, Aurobindo now has headroom to extend its API operations.

The company management told us that they will have to incur some capex in order to bring these acquisitions to a meaningful point business-wise. The capex amount, however, is not expected to be significant and would possibly not be over and above the yearly guidance under this head. As the ticket size of the acquisitions is not particularly large, there would be no change in the balance sheet numbers as well. That would explain why the stock has not shown any significant upward movement on the bourses.