ET Bureau Updated: Dec 27, 2019, 11.45 AM IST
MUMBAI: Zydus Cadila, a group company of listed drug-maker Cadila Healthcare, is in preliminary talks with several strategic and private equity investors to sell two of its divisions — anti-infectives and gynaecology — for about Rs 1,000-1,200 crore, seeking to lower debt and strengthen its balance sheet.
This is part of a broader strategy to reduce debt in the company’s capital structure after it borrowed more to help finance the Rs 4,600-crore acquisition earlier this year of Heinz India’s consumer wellness business.
Zydus has approached larger rivals, such as Cipla and Sun Pharmaceutical Industries, besides financial investors, such as Advent International, Blackstone, KKR and Carlyle, top industry sources told ET.
KKR, Blackstone and Carlyle declined to comment. Zydus, Advent, Sun Pharma and Cipla could not be immediately reached for their comment.
Investment bank Jefferies has been mandated to run a formal process to find a buyer.
The anti-infectives and gynaecology divisions contributed Rs 565 crore and Rs 282 crore to FY19 overall annual revenue of Rs 11,940 crore, the annual report of the Ahmedabad-based company showed.
The anti-infective division named Vivo sells under brands such as Ampilox, Biotax, Amicin, Monotax — all acquired from Biochem Pharma in 2011.
Zydus’s gynaecology division Gynova sells brands such as Provironum, ZYHCG, Ovucet, and Ccliya — drugs that treat infertility.
After the US business, the formulations business in India is the second largest contributor to the drug-maker’s consolidated revenues. The two divisions being considered for divestment are major contributors to this formulations division revenue.
Founded in 1952 by Ramanbhai Patel and Indravadan Modi, Zydus is a generic drug company and manufactures products in the diagnostics, herbal, skin-care and over-thecounter segments.
“Synergies from acquired portfolio, wider distribution network and negligible tax rates in the near term would allow Zydus to report 26% earnings CAGR over FY19-22E. However, due to an increase in debt, the return ratios of the company are at low single digit and would take a good five to seven years to reach double digit levels,” ICICI Securities said in a note on December 3.
In January 2019, Zydus Wellness completed the Rs 4,600-crore acquisition of Heinz India's consumer wellness business, which included the Complan, Glucon-D, Nycil and Sampriti Ghee brands. The acquisition included two large manufacturing facilities (one in Aligarh and another one in Sitarganj) along with operations, research, sales, marketing and support teams, and a network of more than 800 distributors and 20,000 wholesalers in 29 states.
The funding of the acquisition was through a mix of debt and equity. The company raised Rs 2,575 crore by issuing 18.6 million shares on a preferential basis to Cadila Healthcare (Rs 1,175 crore), Zydus Family Trust (Rs 300 crore), True North (Rs 1,000 crore) and Pioneer Investment Fund (Rs 100 crore) at an issue price of Rs 1,382 per share, resulting in an equity dilution of nearly 48%.
The company also raised Rs 1,500 crore by issuing 9.14% secured, redeemable NCDs on a private placement basis. The balance payment was made through Rs 550 crore cash available with the company.
Private equity funds have been aggressive with their pharmaceutical bets. KKR bought into Gland Pharma two years ago, while Advent International recently acquired Bharat Serums and Vaccines from its promoters.
For Cipla, gyanecology is one of the major revenue contributors, while Sun Pharma may use the purchase to complement its offering, besides edging out local competition.
Cadila Healthcare shares have lost almost a quarter in the past one year, underperforming the benchmark index that rose about a sixth in the same period.
A Sun Pharma spokesperson said the company was not approached by the seller. In addition, he said, the company's acquisition strategy was targeted to enhance its specialty pipeline or expansion to other geographies. "As we have said earlier, our acquisition focus is largely on enhancing our specialty pipeline or expanding presence in key geographies," Sun Pharma said.