True North could buy a chunk of Glenmark's API biz for Rs 1500 crore


Mumbai: Private equity firm True North Capital is in advanced talks with Glenmark Pharmaceuticals to buy up to a fifth of the active pharmaceuticals ingredient (API) division of the Mumbai drugmaker for Rs 1,200-1,500 crore, underscoring the allure of India’s burgeoning API business for global funds.

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

Glenmark, which has been fighting larger rivals Sun Phama, Dr Reddy’s, Lupin and Cipla to get into the elite league in the Indian pharma space, decided to hive off the 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 private-equity rivals, including Carlyle Group and Advent International, but True North clearly has an edge, said one of the sources cited above.

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

True North declined to comment, while an e-mail sent to Glenmark did not elicit any response.

True North, previously known as the India Value Fund, is one of the oldest and most aggressive investors in the Indian healthcare space.

The firm manages $3 billion and is seeking to raise another $1 billion in an India-specific fund, its sixth since inception.

“Large pharma companies are looking at alternative routes 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 manufacturer, Glenmark is the 13th largest drugmaker in India and dominates in the dermatology (share of 9.2 per cent), respiratory (4.75 per cent) and cardiology (4.26 per cent) markets.

Glenmark’s API division manufactures and supplies more than 190 APIs to customers worldwide.

Its API business spans more than 80 countries, including regulated markets of the US, Canada, Europe and Japan. Glenmark, which entered into the API business in 2003, has manufacturing facilities in Gujarat and Maharashtra. The API business grew 8.5 per cent in FY18 to Rs 878 crore from Rs 809 crore in FY17.

The company has reported a consolidated net profit for FY 18 at Rs 803.87 crore. It stood at Rs 1,108.75 crore in 2016-17. Revenues stood at Rs 9,103.07 crore for the year, slightly lower than Rs 9,185.68 crore in FY17.

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. “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 generation. Delays in key approvals in the US are a downside risk to our earnings, but news flow on GNP’s innovation R&D pipeline could be a positive catalyst, in our view.”

With Beijing clamping down on polluting industries, India plans to step up API manufacturing. API prices in India have gone up substantially after China’s moves.



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