At the market close today, Krka’s share price amounted to EUR 107/share, an increase of 8.5% since the beginning of the week, fueled by speculation on the potential take-over of its Indian supplier.

Krka has experienced a strong start in 2023, increasing by over 16% since the beginning of the year. This was initially driven by the strong preliminary results that the Company published for 2022, of which you can read more about here. 2022 financials were announced last week on Thursday, and on that day share price was up 1.86%. Since the beginning of this week, the rally has continued and the share price has surged by more than 8.5% to EUR 107/share.

Krka share price (2021 – 2023 YTD, EUR)

Source: Bloomberg, InterCapital Research

We find that the most supportive reason for this growth is definitely the news that has been circulating in the media since yesterday. This pertains to the speculation on Krka’s potential purchase of a significant stake in Unichem Laboratories, its Indian supplier. In fact, according to the media, Krka is estimated to be planning to take over 50.93% of the Unichem Laboratories shares from promoter Prakash Amrut Mody & family. If this transaction goes through, it will trigger an open offer for an additional acquisition of 26% of the equity.

Unichem Laboratories is one of India’s oldest pharmaceutical companies with headquarters in Mumbai. Currently, the value of the Company’s shares on the local stock exchange (Bombay Stock Exchange, BSE) is 336.7 Indian rupees or EUR 3.73 per share. This would put the current market cap at EUR 260m. Furthermore, the takeover talks are said to be slow, as the Company has lost more than 21.7% of its value in the last three months. However, since Friday’s close, it has gained more than 13.2%.

Unichem share price (2021 – 2023 YTD, Indian rupees)

Source: Bloomberg, InterCapital Research

Looking at the Company’s financials, they achieved a revenue of EUR 144m in 2022, with an EBITDA of EUR 9.3m, and a net profit of EUR 3.8m. This would put the current P/S at 1.94x. According to preliminary 2022 results, Krka recorded a sales revenue of EUR 1.72bn (+10% YoY), an EBITDA of EUR 488.2m (+5% YoY), and a net profit of EUR 361.1m (+17% YoY). Compared to Krka, Unichem Laboratories seems an easily reachable target for Krka and a good fit. As a point of comparison, Krka’s P/S at yesterday’s closing price is 2.04x.

Source: Bloomberg, Krka, InterCapital Research

According to a public relations response by Krka, available at finance.si, Unichem has been one of Krka’s suppliers for many years. It produces some active substances and semi-finished products for the Krka group. With the goal of optimizing production, Krka regularly checks the possibilities of expanding cooperation with some of their business partners in the EU, India, China, and elsewhere. Unichem is one of these business partners. Furthermore, Unichem spokesperson told The Economic Times “To date, there has been no event requiring disclosure under listing regulations. The company will disclose the information if and when required in accordance with listing regulations”.

Finally, the takeover of Unichem would provide Krka with a position in the American and South American markets, where they are not currently present. Unichem is internationally present in therapeutic areas such as gastroenterology, cardiology, diabetology, psychiatry, neurology, antibacterial and anti-infective preparations, and pain treatments. It has six subsidiaries in the United States, Great Britain, Ireland, Brazil, South Africa, and China.