Cipla in talks to sell animal health unit
Mumbai: Cipla Ltd, India’s second-largest drug maker by revenue, is in discussions to sell Cipla Vet, its animal health division, according to two persons with knowledge of the development.
The company, which has been in the process of restructuring its businesses and offloading non-core ones, has hired global investment bank Rothschild to find potential buyers, according to one of the two persons, both of whom spoke on condition of anonymity.
Several Indian buyers including Mumbai-based Sequent Scientific Ltd, an associate company of Strides Shasun Ltd, have submitted bids for Cipla Vet, the second person said. Financial details of the proposed transaction are not known.
Cipla Vet is a leading veterinary pharmaceutical exporter with a presence in over 100 countries.
Emails sent to a Cipla spokesperson on Friday went unanswered, while Sequent Scientific’s managing director Manish Gupta and Rothschild India managing director Amitabh Malhotra declined to comment.
Cipla does not provide specific financial details for its veterinary business and classifies this segment under the ‘others’ category in its earnings presentation. The category accounted for 2-3% of the company’s total consolidated sales of Rs13,678 crore in 2015-16.
Cipla’s move to sell its veterinary business comes in the backdrop of its overall plan to rationalize its markets and portfolio and exit non-core, low-profit businesses, believe experts.
“It is very likely that Cipla may look at selling the veterinary business, as this is in line with its strategy of getting out of non-core businesses. The company has been in restructuring mode for some time. It plans to focus on core strengths and exit from areas where the returns are low,” said a Mumbai-based analyst on condition of anonymity.
“While the company’s business model continues to undergo significant changes such as a top management rejig, exit from non-profitable geographies and R&D build-up, we believe the benefits would be back-ended,” Religare Capital Markets said in its report on Cipla released in August this year.
In August, Subhanu Saxena, chief executive officer (CEO) at Cipla, stepped down from the position after three years and the company appointed Umang Vohra as the managing director and global chief executive officer effective 1 September.
“On the organizational front, we have tried to look at the current focus of our business model and fine tune the geography clusters to bring sharper attention to priority markets. We will continue to simplify the way we do business by focusing on a set of core markets and prioritizing our resource allocation to them,” Vohra had said in a conference call with analysts in August.
He added that the company has plans to pull out of about 30 emerging markets as part of the restructuring, of which it has already exited from 24-25 markets in terms of direct presence. Last fiscal, Cipla also changed its business model in Europe to business-to-business from direct-to-market.
The company has identified India, South Africa and the US as its priority markets. Cipla, which was known as a pure domestic drug maker, is working to enhance its presence in the world’s largest drug market—the US. Last September, Cipla had made its largest acquisitions ever by acquiring two US-based companies - InvaGen Pharmaceuticals Inc. and Exelan Pharmaceuticals Inc., for $550 million.
Sequent, one of the largest animal healthcare firms in India, is actively pursuing an inorganic growth plan in India and abroad. In August last year, Alivira Animal Health Ltd, a subsidiary of Sequent, acquired the animal health business of Lyka Labs Ltd, on a “going concern” basis. As part of increasing presence in the formulations business globally, Alivira had acquired a controlling stake in Topkim, Turkey in November last year.
In December, Alivira forayed into the European veterinary pharmaceuticals markets through acquisition of three companies—N-Vet AB (Sweden), Fendigo SA (Belgium, Luxembourg) & Fendigo BV (Netherlands).
Alivira Animal Health makes over 450 formulations for animal health and has an R&D pipeline of over 25 products. Its animal health formulations now account for more than 55% of its business.
The $30 billion global animal health pharmaceuticals market forms a subset of the $100 billion animal healthcare industry. The market is expected to increase to $46.8 billion in 2020 at a CAGR of 7% during 2015-2020, according to Sequent’s FY16 annual report.