Ahmedabad/Mumbai: In a deal that could cost up to Rs4,000 crore, healthcare firm Emami Ltdis in negotiations to acquire a controlling stake in Ahmedabad-based unlisted Paras Pharmaceuticals Ltdthat has over-the-counter (OTC) and personal care product brands such as Moov, Krack, Set Wet, D’Coldand RingGuardin its fold, according to an Emamiofficial.
“We are interested in acquiring the company and some sort of negotiations have begun,” an Emami executive said.
He did not want to be identified or divulge details about Emami’s interest in Paras, as talks have just begun. “We would be interested to acquire the entire company.”
Two private equity firms, Actis Advisors Pvt. Ltd and Sequoia Capital India Advisors Pvt. Ltd, which jointly hold around 70% in Paras, have been looking to sell their stake in the company for around $700 million (Rs.3,269 crore), Bloomberg had reported on Monday.
An investment banker with knowledge of the development said the valuation of the firm was reasonable considering profitability had been good this year and prospects in the consumer goods segment were promising. The banker, too, requested anonymity.
The FMCG index of the Bombay Stock Exchange (BSE) has risen 35.54% in past year and touched its yearly high on 7 September. Emami’s shares gained 0.93% on BSE on Wednesday. The stock has outperformed the benchmark Sensex index over the past year, gaining 107.89% against Sensex’s 15.77% rise.
“We don’t comment on potential exits,” said Sumir Chadha, managing director of Sequoia Capital India, which had invested $12 million to pick up an 8% stake in Paras in 2006.
“I cannot comment on such matters relating to our portfolio companies,” J.M. Trivedi, head of South Asia at Actis Advisers said in an emailed statement on 31 August. After acquiring 23% in 2006, Actis ramped it up to 62%.
The remaining 30% stake in the firm is held by chairman and original promoter Girish Patel. “I would not like to comment on this as the matter is related to our shareholders,” Patel said.
A person with direct knowledge of the development said: “The process has just been initiated and investment bankers have been appointed last week. A lot of buyers have shown keen interest and Emami is one of them.” The person declined to be named.
Actis and Sequoia have appointed Morgan Stanleyas investment bankers to the deal.
Quoting a statement from Actis, the Bloomberg report stated that Paras saw a 32% growth in revenue this year, while operating profit climbed 51%
Sunil Duggal, chief executive officer of Dabur India Ltd, had recently said once Paras is on the block, they would look at it.
When asked on Wednesday whether Dabur was in talks with Paras, Duggal said, “No comments.”
Apart from its successful products, Paras also owns substantial real estate in Gujarat, which could be of value to potential acquirers. The company has shifted most of its production to a new unit in the tax-free area of Baddi in Himachal Pradesh.
Its original factory in Kalol, Gujarat, is almost vacant. The size of the land at Kalol isn’t immediately known.
Analysts, however, cautioned that unlike its acquisition of Zandu Pharmaceutical Works Ltd, Emami may choose to acquire Paras’ key products and brands only and not the real estate in the company.
“Emami paid for Zandu’s real estate assets, making the acquisition expensive,” said Rajesh Agarwal, head of research at Kolkata-based stockbroking firm Eastern Financiers Ltd. “But this time, it may want to buy only brands and key production facilities.”
Emami has been on the lookout for its next acquisition after it acquired management control of Zandu in November 2008 and merged its herbal healthcare business with itself.
Mint had reported on 3 September that Emami was exploring an acquisition in the healthcare or personal care space either in India or overseas. Consulting firm Ernst and Young and boutique investment banking firm Singhi Advisors Ltd were helping it scout for investment targets.
Emami had Rs.604 crore of cash reserves on its balance sheet as on 31 March and had passed an enabling resolution to raise Rs.1000 crore in June.
Aveek Datta contributed to this story.