How Eris is weaving a success story around its 4 distressed acquisitions

Eris Lifesciences started new neuro-psychiatry and women healthcare divisions for Strides portfolio and a new nutrition division for UTH portfolio

After growing organically for almost a decade, Eris Lifesciences made 4 acquisitions of distressed businesses in about a couple of years and is now hoping to turn them around.

Of the four acquisitions, Eris has managed to grow the contributions from Amay and Kindex to its revenues by a whopping 211 per cent this fiscal from FY17. The Ahmedabad-headquartered company is working actively to turn around the other two - Strides (its largest acquisition so far) and niche nutrition player UTH Healthcare.  

The company paid around Rs 6.3 billion for these assets and now analysts expect these to start contributing to the top line in FY18. For example, Citi Research highlighted in a recent report that Amay Pharma (now Aprica Pharmaceuticals) and Kinedex (that cumulatively contributed Rs 450 million to revenues in FY17) to generate more revenues of Rs 1.3 to 1.4 billion and better margins in FY18. Amay Pharma had 10 months while Kinedex had only three months of sales in Eris' FY17 numbers.

A mail sent to the company remained unanswered. 

Eris has already taken major steps to integrate the Strides Shasun business that it acquired in November 2017 for Rs 5 billion. The India branded business of Strides had a sales of Rs 1.81 billion in FY17. 

Amit Bakshi, chairman and managing director of Eris Lifesciences has indicated in a post earnings analyst call that Eris 'cherry picked' distributors across the channel along with manpower that it took from Strides. From 1,300 core distributors (before the Strides acquisition) it has moved to 1,700-1,750 distributors now.

The Strides portfolio was being promoted by 1,400-1,600 people. Eris has taken around 250-300 people. 

Further, Eris having acquired a good portfolio in neuro-psychiatry from Strides along with human capital in that therapy area, Eris expanded its neuro-psychiatry division (from 65 to 100 people) besides adding another division of around 130 people. 

The strategy is to not just bank on the two top brands (Ginkocer and Serlift) here, but also use these new divisions to promote the numerous brands like Levroxa (which are Rs 20-25 mn in size now) but are second or third lead brands in their therapy areas. Similarly, in the women healthcare segment, it has added people. It got the Raricap brand from Strides. 

In fact, in the third quarter of FY18, there has been a Rs 100-110 million (or around 30 per cent) increment in HR cost on a quarter to quarter basis as new people have come in. 

But, the biggest advantage of the Strides portfolio is that it allows Eris to expand its footprint in uncovered markets, example, the Southern Indian market. Around 52 per cent of the Rs 1.8 billion sales (that the Strides portfolio had in FY17) would come from one state - Tamil Nadu. Prior to Strides acquisition, the southern market as such contributed 26 per cent of Eris' sales. 

On the Strides acquisition, Bakshi has said that the company would need one to two quarters to transform the potential into numbers. 

Analysts expect significant scale up in the other recently acquired assets too. 

Kinedex, for example, had Rs 830 million sales in FY17 with 50 per cent coming from its top brand Rosifex. Citi Research said that Eris now plans to move a large part of Kindex' manufacturing to its Guwahati facility and this could drive gross margins higher by 10 per cent or so from current 63-64 per cent levels. 

As for Amay Pharma (Eris had acquired trademarks in relation to 40 brands that had sales of Rs 193 million in FY17), Eris is now working on leveraging its own strengths to drive growth in the anti-diabetes and cardiovascular brands that it acquired from Amay. 

UTH Healthcare (sales of Rs 256 million in FY17) primarily works in the niche nutrition space. Bakshi has indicated that Eris has already integrated parts of UTH portfolio, and is launching a nutrition division with around 35 people this quarter. 

As such a Credit Suisse report says, that the existing business would grow at a 15 per cent CAGR.