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Blackstone, KKR, Bain among PE cos in talks to buy Granules India

The investor relations team at Granules India denied the promoters are seeking to sell their stake.

Nov 28, 2019, 07.38 AM IST
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In a similar deal, General Atlantic had acquired Rubicon Research, a home-grown CRAMS major, for $100 million in April.
Mumbai: The Blackstone Group, KKR & Co, Apax Partners, Advent International and Bain Capital are among the leading global private-equity companies engaged in early-stage discussions to acquire Granules India, one of the largest contract research & manufacturing companies in the country.

The Chigurupati family, the founding promoter, holds 43 per cent stake in Granules that has roped in Kotak Mahindra Capital for the sale, top industry sources told ET.

PE funds see Granules as a good opportunity as manufacturing of their global pharma portfolio companies can be outsourced and APIs and bulk drugs can be exported at a cheaper price, said an official following the ongoing negotiations closely.

“We have been approached mid-October (for the acquisition) and we are evaluating the prospect,” a PE fund manager said, on the condition of anonymity, as the talks are in private domain. The founders are believed to be keen on a control premium, valuing the company at $500-550 million (Rs 4,000 crore).

Its shares surged 51 per cent to Rs 128.9 during the past one year, significantly outperforming the broader markets. Market capitalisation of the company stood at Rs 3,277.25 crore on Wednesday. Based on this, the current promoter shareholding is valued at around Rs 1,410 crore.

Priyanka Chigurupati, executive director of Granules Pharmaceuticals, declined to comment.

The investor relations team at Granules India denied the promoters are seeking to sell their stake. “The promoters have not given any mandate to either Kotak Mahindra Capital or any other investment bank on this matter. The promoters are fully committed to the business,” said Sai Prasad Madishetti, a member of the Investors Relations-Treasury team at the company.

Mail sent to Kotak Mahindra Capital did not elicit any response.

Established in 1984 by Krishna Prasad Chigurupati, the Hyderabad-based Granules makes paracetamol, ibuprofen, metformin, guaifenesin and methocarbamol, or drugs that treat pain, fever, and diabetes. It also focuses on the CRAMS segment — contract research and manufacturing.

Some analysts cited succession challenges as the reason to exit.

Spokespersons with KKR, Apax, Bain and Advent declined to comment, while a mail sent to Blackstone did not elicit any response.

Granules has reported a revenue of Rs 2,279 crore in FY19, compared with Rs 1,692 crore in the same period a year ago. The company’s EBITDA stood at Rs 410.7 crore as against Rs 289.3 crore recorded during the same period last year. Net profit was atRs 236.4 crore compared with Rs 132.6 crore in FY18, its annual investor presentation showed.

At present, 47 per cent of the revenue comes from sales of finished dosages, 36 per cent from APIs and 17 per cent from pharmaceutical formulation intermediate (PFI). North America contributes 49 per cent share of revenue, while 9 per cent is from Latin America, 18 per cent from Europe and 20 per cent from India.

PE firms in talks to buy Granules

“We believe a better operating performance would be due to more revenue from high-margin formulations, greater capacity utilisation of the expanded facilities and traction in US generics. We expect the EBITDA margin to move up 350bps by FY21 with a 24 per cent PAT CAGR over FY19-21,” Anand Rathi Financial Services said in a note on October 23.

Cost-effective manufacturing of finished dosages and APIs, and availability of cheap labour have made India an attractive outsourcing destination for global pharmaceutical companies.

In a similar deal, General Atlantic had acquired Rubicon Research, a home-grown CRAMS major, for $100 million in April.

The pharma and healthcare space in India has seen 25 PE/ VC deals worth $709 million in 2019 against 24 deals worth $1.25 billion last year, according to a Grant Thornton report.

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