BackFormer Zandu promoter Parikhs to soon completely exit API biz ZCL Chemicals
Nihar and his father Ajay Parikh had floated ZCL Chemicals when Zandu Pharma was acquired by Emami in 2008
PremiumThe erstwhile promoters of Zandu Pharma, the Parikh family, will soon exit ZCL Chemicals Ltd, the active pharmaceutical ingredients (API) business, after selling a 74% stake in ZCL to private equity firm Advent International , said Nihar Parikh, executive director, ZCL Chemicals.
“It will be done in two tranches, with the second tranche subject to applicable regulatory approval, a prerequisite for the second tranche of 26%. So 74% (including 19% of Morgan Stanley) has happened and 26% will happen post approval in the next few months once it is in place," said Parikh.
According to the foreign direct investment policy, 74% overseas investments are allowed under the automatic route, while government approvals are required for a 100% stake sale. Parikh said he will apply for the approvals and expects to get them in 4-6 months.
Nihar and his father Ajay Parikh had carved out ZCL Chemicals from Zandu Pharma when the latter was acquired by fast-moving consumer goods major Emami in 2008. Nihar, then 22, was an intern at a multinational corporation in Belgium. He moved to India and took over the day-to-day management of ZCL Chemicals.
In 2008, the Parikhs had carved out ZCL Chemicals for ₹12.5 crore. The Advent deal values the company at ₹2,000 crore.
“When we started the process, the idea was to give them (Morgan Stanley Private Equity) an exit. However, during the process there was a tremendous amount of incoming interest from the investor community, especially buyout funds, in buying a controlling stake. In the last 12 years, the API industry has not received as much interest from the investor community as it has today, because of the disruptions caused by covid-19. ZCL, this year, has performed phenomenally well. So we thought there could not be a better time in case we want to exit," said Parikh.
“I think the scale at which we were at this stage, it was probably too early to go public. Had we been around for the next five years that would be the next step. However, if the private guys are valuing the company like what the markets are, we thought there is no reason for us to go public," he said.
In 2016, Morgan Stanley had picked up a minority stake in the company at a valuation of ₹750 crore.
According to Parikh, ZCL was able to create significant value in just over a decade due to its focus on niche but highly profitable products and developed markets of the US and Europe.
“When I joined the company back in 2008, we said that we're going to focus on high value, low volume products. Our focus is going to be on the bottom line. Most companies in India in API, typically start from selling into India and the emerging markets. But because we wanted to do high value high margin business, we said that we focus on North America and Europe," said Parikh.
According to people aware of the company’s performance, ZCL is expected to report a 25-30% jump in its topline this fiscal from the Rs261 crore it reported last year, while Ebitda is expected to almost double from Rs77.3 crore in fiscal 2020.
Having achieved a significant exit for the family and their private equity investor, Parikh is now planning his next venture.
“I think the idea is to take a break and then decide what we want to do next. There are a lot of thoughts, a lot of ideas, a lot of work in progress. Definitely, we will be doing something either in the healthcare pharma space, or it could be outside of that as well," he said.
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