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.

According to the first ever flash estimate of the Croatian CPI, it grew by 12.7% and remained roughly the same MoM.

With the entry of Croatia into the Eurozone, the Croatian Statistical Office (DZS) has announced that it will start releasing the so-called “flash estimates” for the Croatian CPI, on the same day as Eurostat’s HICP (Harmonized Index of Consumer Prices). The flash estimate will be the 1^st estimate of the CPI for the previous month. It will be based on roughly 80% of the received and processed data, and data across countries in the EU will be comparable through the HICP.

Coming back to the CPI, the first estimate is that it grew by 12.7% YoY in January 2023, while on an MoM basis, the prices have remained roughly the same.

CPI (January 2013 – January 2023*, %)

Source: DZS, InterCapital Research

*Data based on the 1^st estimate

Observing the selected groups, on the annual basis, Food, beverages and tobacco increased by 15.4%, Energy by 13.8%, Non-food industrial goods without energy by 12.1%, while Services increased by 9.3%. On the monthly basis, Food, beverages and tobacco increased by 1.3%, Services by 1.1%, while a decrease is estimated in the groups’ Non-food industrial goods without energy, by 2.1%, and Energy, by 1%.

The final data for the CPI in January 2023, will be released on 23 February 2023.

Compared to the full release of the CPI, the flash estimate contains a lot less data as well as no detailed breakdown of the CPI or its growth drivers. However, if the estimate turns out to be correct, the CPI of 12.7% is actually at the same level as the 13.1% last month. This is because the CPI in January 2022 was the same amount higher compared to the CPI in December 2021, as is the CPI in January 2023 as compared to December 2022. Because of this, even though the CPI on the annual level is “lower”, it’s only lower due to the higher base in the same month last year, signaling that inflation is actually not slowing down. Looking at categories, we can see that Energy is actually slowing down/decreasing, which is to be expected due to the decrease in gas/electricity prices, both due to warmer than expected winter, but also due to higher storage of gas across Europe for this time period. Food, beverages and tobacco has continued growing, and considering the amount of news we have seen after the introduction of the euro about price increases of the products in these categories, it will be interesting to see a full breakdown once the entire CPI release is published.