The valuations of privately held pharmaceutical companies have increased in the first six months of 2015, a growth which resulted from the continuous growth of the pharma index in the BSE in the last four years, according to the data from Venture Intelligence, a research service focused on private company financials, transactions and their valuations.
According to the data, at least three out of the top four deals happened in the sector, has attracted revenue multiples at or over 5x, while the same was only one during the corresponding period last year.
Capital International's investment around $203 million in Mankind Pharma in May, this year, was at a revenue multiple of 5x, Ebitda (earnings before interest, taxes, depreciation and amortisation) multiple of 23x and PAT (profit after tax) multiple (based on equity value) of 34.3x.
Sequoia Capital Ltd's investment of $9.6 million into Mumbai-based Koye Pharmaceuticals in March, 2015, was at revenue multiple of 12.08x. Similarly, Sequoia's investment of $15.5 million into Gujarat-based La Renon in June 2015, was at was at 6.68x revenue multiple, 61.56x of Ebitda multiple and 99.6x of PAT multiple.
Compare this with the deals happened during the corresponding period last year, the largest revenue multiple was of 8.55x in the $1.82 million investment in Kama Ayurveda in March, 2014. Temasek's investment of $144 million into Intas Pharmaceuticals in June, 2014, was at a revenue multiple of 2.08x, where as the Ebitda multiple was at 10.13x and PAT Multiple was at 14.26x. Ascent Capital's investment of $20 million in Alivira Animal Health, currently promoted by Strides Arcolab, in April 2014, was at a revenue multiple of 3.16x and an Ebitda multiple of 23.95x. "With the BSE Pharma Index on an upswing since 2011, in 2015, private equity investors are paying higher multiples to buy into unlisted pharma companies," said Venture Intelligence data.
The data shows the S&P BSE Healthcare Index, majority of which comprises of pharmaceutical companies, has seen a growth year-on-year from 2011, from 5,945.59 to 16,988.5 on July 8, 2015. The index has shown twofold growth from 2011. The revenue multiple of the private pharma firms has increased from 3.44x in 2011 to 6.32x in 2014 and to 17.08x in 2015. The median valuation, a median value of all the available investments in a year, has increased from Rs 195 crore in 2011 to Rs 400 crore in 2014 and Rs 800 crore in 2015, till the first six months.
While the Ebitda multiple has seen a decline from 15.83x in 2011 to 8.17x in 2012, it has grown up to 23x in 2015. However, the PAT Multiple has seen a decline from 38.84x in 2011 to 34.30x in 2015.
While the valuations of the listed pharma firms has also seen a growth during the period, it is lesser compared to the growth in the unlisted firms. The revenue multiple of the listed companies has seen a growth from 1.34x to 2.96x in 2014 and to 8.43x in 2015. The Ebitda multiple has seen an increase from 7.29x in 2011 to 29.41x in 2015. The PAT multiple grew from 11.57x to 49.53x during the same period.
A significant trend is that in almost all the metrics, the growth in 2015 compared to 2014 was higher compared to the previous years. Analysts points out that the sector is posting strong growth over the years, considering the growth in the domestic pharma industry, the export opportunities increasing with a large number of patented drugs going off patent in the regulated markets, among others. According to data available with the India Brand Equity Foundation, a trust established by the Union ministry of commerce and industry, the Indian pharmaceuticals market is expected to expand at a CAGR of 23.9 per cent to reach $ 55 billion by 2020, from $12 billion in 2013.
