Mumbai: Three private equity (PE) funds are in early talks to acquire a significant stake in Glenmark Pharmaceuticals Ltd’s active pharmaceutical ingredient (API) business, said two people directly aware of the development. Private equity funds Carlyle Group, Advent International and China’s Fosun International are holding separate talks with Glenmark to pick up the API business, which will be demerged into a separate entity, the people cited above said, requesting anonymity.
The deal is expected to be valued at ₹ 1,500 crore, or more, they said, requesting anonymity.
In a regulatory filing in May, Glenmark said that it had set up a committee to assess the feasibility of hiving off the API and consumer care businesses into separate entities.
“The company has decided to separate the businesses and has appointed Avendus Capital as the investment banking adviser to find potential suitors," said the first person.
“The structure of the deal is not yet finalised and will depend on what the negotiations lead to," said the first person cited above.
When contacted, an Avendus Capital spokesperson said: “As a matter of policy, Avendus does not comment on transactions."
Email queries to Glenmark seeking comments remained unanswered till Sunday night.
In May, Glenmark had not disclosed the reasons for the potential demerger. However, the people cited above said the move was part of its overall debt reduction strategy.
In FY18, the company’s debt stood at ₹ 4,723 crore, compared to ₹ 4,747 crore in 2016-17.
A recent India Rating report said that Glenmark’s pricing erosion in the US generics market had resulted in a year-on-year decline of over 35% to ₹ 1,440 crore during the first half of FY18, and its earnings before interest, taxes, depreciation, and amortisation (Ebitda) was stressed.
Glenmark has been in the API business since 2003 and has a portfolio of over 100 products across key regulated markets.
Till date, it has filed over 190 drug master files (DMFs) in various markets.
The reported vertical reported sales of ₹ 878 crore in FY18, up 8.5% from the year-ago period.
Glenmark’s API basket includes perindopril, lercanidipine, amiodarone, etoricoxib and adapalene. It has API manufacturing facilities in Ankleshwar, Dahej, Aurangabad, Kurkumbh and Mohol.
“Currently there are few complaints about the API facilities in India, which has led to a surge in demand," said Mahesh Singhi, founder and managing director of Mumbai-based investment bank Singhi Advisors. “There has been no fresh investments in the segment for the past five to six years and many are facing debt challenges."
Singhi also said that China, which is the largest producer of APIs, has regulated production leading to a spurt in demand globally. “I expect investors, including private equity funds, to pay significant premium for any investment in the speciality chemicals sector, including API."
An email query to Fosun remained unanswered, while spokespersons for both Advent and Carlyle declined to comment.