True North in talks to buy into Glenmarks API biz for Rs 1500 cr

Advertisement

MUMBAI: Private equity firm True North Capital is in advance talks with Glenmark Pharmaceuticals to buy upto 20 percent stake in the active pharmaceuticals ingredient (API) business of the Mumbai-based firm for about Rs 1200 crore - 1500 crore, in what could be yet another investment in India’s burgeoning API business segment. 

If successful, the transaction will help Glen Saldhana-controlled company to make a bigger step in the API business through rapid expansion and acquisitions, multiple sources with knowledge of the process told ET. 

Glenmark, which has been fighting with its larger rivals such as Sun Phama, Dr Reddy’s, LupinNSE -1.63 % and CiplaNSE 0.31 %, to get into the elite league in the Indian pharma space, has decided to hive off consumer care and API businesses in May and raise funds for expansion. 

The company has mandated Avendus Capital to run a formal process to find a buyer. 

The process has seen interest from larger rivals including Carlyle Group and Advent International, but true North is clearly has an edge, said one of the sources mentioned above. 

“The talks are at the penultimate round. We are still a few weeks away from binding offer,” said one of the sources mentioned above. 

When contacted a True North spokesperson declined to comment while mail sent to Glenmark did not elicit any responses. 

True North, previously known as India Value Fund, is one of the oldest and most aggressive investors in the Indian healthcare space. The firm manages $3 billion and is on the roads to raise another $1 billion India specific fund, its sixth fund since inception. 

"Large pharma cos are looking at alternate route to monetise their business as they keep looking at ways to grow," said Ajay Garg, managing director of Equirus Capital. 

Founded in 1977 by Gracias Saldanha as a generic drug and active pharmaceutical ingredient manufacture, Glenmark is 13th largest pharmaceutical manufacturer in India at present and dominates in dermatology (market share of 9.2%), respiratory (4.75%) and cardiology (4.26%) markets. 

Glenmark's Active Pharmaceutical Ingredients (API) division manufactures and supplies more than 190 APIs to customers worldwide. Its API business spans over 80 countries including regulated markets of the US, Canada, Europe and Japan. Glenmark, which entered into the API business in 2003, has manufacturing facilities at Gujarat and Maharashtra. 

The company has reported a consolidated net profit for FY 18 at Rs803.87 crore. It stood at Rs1,108.75 crore in 2016-17. Revenues stood at Rs9,103.07 crore for the year while the same was at Rs9,185.68 crore in 2016-17. 

The company has a net debt of Rs 4,700 crore and according to analysts, the debt reduction would be the key to the company. 

API business of Glenmark grew 8.5% in FY18 to Rs.878 crore from Rs.809 crore in FY17. 

"Net debt reduction in another key trigger for the stock," JP Morgan analysts Neha Manpuria, Sahil Dhingra and Kevyan Kadakia wrote in a note on July 18. "We like Glenmark’s long-term business potential with a mix of complex generics and innovative pipeline opportunities, strong EM and India business. However, the recent disappointment on earnings and net debt reduction will increase focus on the company’s ability to show sustained base business improvement, margin expansion and cash flow genera .. 

In backdrop of Chinese government clamping down on polluting API industry across the country, the chemicals and fertilizers ministry, Government of India plans to step up the API manufacturing in India. API prices in India have gone up substantially after the the recent developments in China. 

At present, 60% of the Bulk drugs or APIs in India is imported from China. Indian Government's move is expected to boost the API manufacturing business of domestic companies.