New Delhi| Mumbai: Cipla and Asian buyout fund PAG are vying with each other to acquire a big chunk of Wockhardt’s domestic formulations business for Rs 2,100-2,800 crore ($300-400 million) as the indebted pharmaceutical company looks to deleverage its balance sheet, said people aware of the matter.
Both submitted binding offers recently, they said. Habil Khorakiwala-led Wockhardt is expected to finalise one bidder and begin final negotiations to conclude the transaction.
The company has a significant presence in major therapeutic segments including cardiology, dermatology, diabetes, respiratory diseases and ophthalmology. A carveout of the portfolio is being planned, said the people cited above. The stock surged 20% on Monday to end at Rs 358.80.
Co Posts Q3 Net of Rs 19 cr
In the nine months ended December 2019, the company repaid ?768 crore toward various long-term debt obligations as per schedule, up from Rs 750 crore in the year earlier. Debt repayment in the December quarter was Rs 359 crore, up from Rs 347 crore a year earlier. The gross debt-equity ratio on December 31 was 0.95. Total debt at end of September 2019 was Rs 2,211 crore. ET was the first to report on July 4 last year that Khorakiwala had appointed investment bank Moelis to initiate a formal process for a stake sale in the business. Last year, the company tried to raise money through foreign bonds, sale of its hospital division and a private equity fundraise in its listed entity.
Lack of investor interest forced the company to eventually spin off its cash cow — and sell it to raise capital.
The company didn’t respond to queries. Spokespersons for PAG and Cipla declined to comment.
Wockhardt, which launched nine new products for the domestic market in FY19, has incurred losses in the past three years on a consolidated basis. On Monday, however, it reported a consolidated net profit of Rs 19.21 crore in the December quarter against a net loss of ?71 crore in the year-ago period. This is the company’s first quarterly profit in three years.
Revenue though dropped to Rs 869 crore from Rs 1,046 crore. Wockhardt said business performance showed a marked improvement with sales growth of over 8% from the previous quarter. Earnings before interest, taxes, depreciation and amortisation (ebitda) for the quarter showed a substantial improvement to Rs 109 crore in the December quarter from Rs 19 crore in the year earlier. Ebitda in the first nine months of FY20 improved to Rs 208 crore from Rs 100 crore.
BACK IN BLACK
“While the company has been reporting steady ebitda quarter-on-quarter, the company bounced back into profit for the first time in the past three years due to a marked improvement in operational performance and cost rationalisation,” it said in a statement.
Earlier in the month, the drugmaker announced it had received approval from the country’s drug regulator to market Emrok IV and Emrok (oral) to treat acute bacterial skin infections, including diabetic foot, caused by superbug methicillin-resistant staphylococcus aureus (MRSA). Their launch is expected in the next few months and will be primarily used on the critically ill.
Wockhardt employs more than 7,000 people and has a presence in the US, Britain, Ireland, Switzerland, France, Mexico, Russia and other countries. It has manufacturing and research facilities in India, the US and Britain, and a plant in Ireland.
For Asia-focused private equity fund PAG, this could be its first buyout in India after its 2019 entry. PAG is looking at deploying more than $1 billion in India over the next three years, a senior company executive told ET in a recent interview.
SPENDING ON MEDICINES
As per an August 2019 research report by ICICI Securities, Cipla currently has a 5% share of the domestic formulations business. The company has been trying to expand its market share organically and inorganically.
“With this transaction, Cipla will be able to speed up its growth. Cipla has a significant presence in urology, respiratory and antibiotics segments. However, it is facing incremental challenges. They need a portfolio and this acquisition will help boost its domestic presence,” a pharma analyst said.
ET could not independently verify the portfolios for divestment.
Spending on medicines in India is projected to grow 9-12% over the next five years, putting it in the top 10, according to the Indian Brand Equity Foundation’s October 2019 report on the country’s pharmaceutical sector. India’s pharmaceutical industry is expected to expand at a compound annual growth rate (CAGR) of 22.4% in 2015–20 to reach $ 55 billion.
“Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are on the rise,” the report said.
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