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Private-equity investors line up exits through pharma IPOs

With sector indices doing better than benchmark, Blackstone & ChrysCapital get ready to sell part-stake from earlier investments

Reghu Balakrishnan Mumbai
Though the stock market remains volatile, a handful of private equity (PE) investors are hopeful of exits through initial public offerings (IPOs) in the pharmaceutical and health care sector. Blackstone and ChrysCapital are part-exiting their portfolios in Emcure Pharma and Intas Pharma, respectively, which filed a draft prospectus recently with the Securities and Exchange Board of India. Experts say these IPOs would be accepted well, in the absence of any by leading drug manufacturers over the past two years.

Vikram Hosangady, head of PE at KPMG India, said: “The sector is largely unaffected by policy, though pharma in recent times is plagued by FDI (foreign direct investment) and pricing regulations. The macro story for both healthcare and pharma remain compelling for strategic and PE investors alike.”

In the past year, the BSE health care index surged 31 per cent, while the BSE Sensex, the benchmark, rose 12 per cent during the period.

Blackstone-backed Pune-based Emcure is looking to raise around Rs 600 crore through the IPO. The US-based PE giant had invested Rs 225 crore in Emcure in 2006; it holds 13.09 per cent stake. Blackstone will sell a little over 25 per cent of the Emcure stake through the IPO. Emcure plans to sell new shares worth Rs 300 crore and 2.51 million shares of existing holders. For the year ended March 31, 2012, Emcure’s revenue was Rs 1,804 crore, while net profit rose to Rs 95 crore.  Nitin Deshmukh, chief executive of Kotak PE, said, “Pharma is among the best performing sectors over the past few years and investors have made very good returns. Pharma companies with sizeable revenues and profits, if priced appropriately at IPO, will succeed.” After earlier withdrawing its IPO plans, Ahmedabad-based Intas Pharma filed the draft prospectus again this month. The Rs 2,780-crore company is looking to raise about Rs 225 crore through the proposed IPO. The promoters currently hold around 85 per cent and ChrysCapital hold a 15 per cent stake. Last April, ChrysCapital had bought additional stake for Rs 300 crore. It had, in 2006, invested Rs 48 crore by acquiring a 12.47 per cent stake from ICICI Venture.  Only a few public issues of pharma companies had been floated in the past couple of years. Since 2010, there have been four Pharma IPOs — of Claris Lifesciences, Parabolic Drugs, Syncom Healthcare and Aanjaneya. All were  small-cap or mid-cap companies.

Gaurav Deepak, managing director of Avendus Capital, said, “Absence of large IPOs in the pharma space is one of the factors that will lead to a significant scarcity premium for scaled-up assets like Intas and Emcure. Leading players in this space trade at 20-25 times PAT (profit after tax) and these companies can expect similar valuation. Given the IPO environment, the companies might choose to give an upside to investors and price the issue at a lower end of the range.”

Avesthagen, the Bangalore-based life sciences company, where PE majors like ICICI Venture and Jacob Ballas have invested, is also looking to enter the market, according to news reports.  “Pharma is one of the few sectors that have outperformed the indices in the past two years. Given the volatility in the market, several pharma companies have undergone a significant multiple re-rating and, in most cases, demonstrated performance to justify such valuations. So, this augurs well for pharma IPOs,” added Hosangady.

Drugs for chronic ailments (cardiac or nervous system diseases) constitute 28 per cent of the market today but are growing at a faster rate of 17-18 per cent annually. Both Intas and Emcure derive a large part of their revenues from chronic ailment drugs and, hence, are expected to enjoy higher growth in the coming years, feel experts.  According to the All India Organization of Chemists and Druggists, the branded formulations market generated annual revenue of Rs 70,000 crore for the year ending March 2013. The market has been growing at 15 per cent annually over three years and the momentum is expected to continue.
RIGHT TIME
  • Blackstone-backed Pune-based Emcure is looking to raise around Rs 600 crore through its IPO. Blackstone will sell a little over 25 per cent of its Emcure stake through the IPO
  • Ahmedabad-based Intas Pharma, in which ChrysCapital hold a 15 per cent stake, is looking to raise about Rs 225 crore through its proposed IPO
  • Experts say these IPOs would be accepted well, in the absence of any by leading drug manufacturers over the past two years.
  • Since 2010, there have been only four pharma IPOs —  Claris Lifesciences, Parabolic Drugs, Syncom Healthcare and Aanjaneya, all small-cap or mid-cap companies
 

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First Published: Jul 06 2013 | 9:18 PM IST

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