India’s oldest pharmaceutical company, Vadodara-headquartered Alembic Ltd, is demerging its main pharmaceutical business into a separate subsidiary company, Alembic Pharma Ltd (APL), to unlock the value of its branded formulation business and separate it from risks associated with the conventional pharma businesses.
The 112-year-old parent, Alembic Ltd, now with a turnover of Rs 1,142 crore, will retain its businesses in the Vadodara undertaking, which has fermentation facilities to manufacture Penicillin G and other old drug products like erythromycin thiocyanate, along with 16 Mw of captive power generation facilities and 100 acres of land in the heart of Vadodara city.
After the demerger, Alembic Ltd will be reduced to a turnover of Rs 114.96 crore, as Rs 1,027 crore worth of business — including domestic formulations, international generic and active pharmaceutical ingredients (APIs) and some units in Gujarat and Andhra Pradesh — will move to the new company, APL.
Strategy change
“The move is not aimed to sell off the branded formulation business to any multinational player, but to focus on core high-growth business areas and to unlock value from assets,” Rajkumar Bhayenthi, chief financial officer of Alembic Ltd told Business Standard.
The process will take about seven to nine months and the formally appointed date of de-merger would be April 1, 2010. The share prices of Alembic Ltd rose to a 52-week high of Rs 58.40 on the Bombay Stock Exchange today, to close at Rs 55.15, which was 5.7 per cent higher than the close of trading the day before.
A company statement said under the demerger scheme, the shareholders of Alembic Ltd are to be issued one share having a face value of Rs 2 each in APL for every one equity share having a face value of Rs 2 each in the former. Post the de-merger, the equity share capital of APL will be Rs 37.70 crore, of which Alembic Ltd will hold 29.18 per cent and the balance will be with the latter’s shareholders.
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The new company also will be listed on the stock exchanges.
Reasons
The conventional businesses of the company under the Vadodara undertaking, like its penicillin business, are largely commoditised, highly volatile due to fluctuations in raw material prices and face competition from companies from China.
The plant does not have approval from the US Food and Drug Administration and the expenses for upgrading this to the latter’s standards will be more than the cost of setting up a new unit.