Moneycontrol
Aug 28, 2015 02:58 PM IST | Source: CNBC-TV18

Lyka's animal biz acquisition won't add to debt: Sequent

Manish Gupta, CEO, Sequent Scientifc said the acquisition will not put any debt burden on the books.

Sequent Scientific is set to acquire the animal health business of Lyka Exports. Throwing more light on the acquisition and business outlook going forward, Manish Gupta, CEO, of the company told CNBC-TV18 that the inorganic growth remains the core growth strategy.

Lyka Exports Limited is a subsidiary of Lyka Labs Limited.

He said the acquisition will not put any debt burden on the books and would be paying around seven times of the current year’s EBITDA for it.

“Have acquired Lyka’s Aminal Health Business on slump sale basis,” said Gupta. Currently the topline of Lyka’s health business has been growing at 30 percent, he added.

On the outlook for the whole business going forward, he said growing inorganically is an important part of their growth strategy.

The focus for the company remains in creating value and not on EBITDA only.

Below is the transcript of Manish Gupta’s interview with Latha Venkatesh, Anuj Singhal & Varinder Bansal on CNBC-TV18.

Latha: This Lyka Exports has a topline in the last reported year of Rs 23 crore. What are you paying for this company?

A: The consideration is not disclosed and there is an element of contingency consideration based on current year performance. However, if all goes well we will be paying about seven times EBITDA of the current year.

Latha: You can’t share with us the EBITDA itself?

A: As of now no because there are certain confidentiality obligations that I have but in couple of days we will be able to share the same.

Latha: What about the debt of the company? How much debt are you taking on?

A: We are not buying the company; we are buying the business on a slump sale basis.

Latha: So no debt comes with it?

A: That is correct.

Anuj: If you could tell us about the topline of this company what kind of growth has this company has seen over the last two or three years?

A: It is about a six year old business. Strong in the cattle and dairy segment which has the more profitable and sustainable part of the veterinary business. It is a perfect complementary fit to our business, which is most strong in the poultry side in India as of now.

Put together we will have combined strength of about 250 people in the field which again makes us a formidable player globally. The business as I mentioned last year it did about Rs 23 crore but the topline of the business is growing at 30 percent plus with an expansion in margins.

Varinder: The company that you acquired did EBITDA margin of 12 percent so that means around two and two and a half crore so if you are paying nearly seven-eight times of EBITDA, I am assume the cost of acquisition could be anywhere between Rs 15-20 crore?

A: As I mentioned the valuation is more driven by the current year numbers and business is growing at about 30-35 percent in terms of topline. However, the bottom line is expanding much faster.

Varinder: We have seen a series of acquisitions coming from your side. It was Provet what he acquired; a Turkish animal health company earlier as well. The margins for the company has improved in the last quarter and even in FY15 if I have to see those numbers but the company still not reporting profit for the full year? When do you expect that the company will come into the black going ahead?

A: As I mentioned sometime back we are right now on the cusp of that change and fundamentally both part of it was driven by the large interest burden that we have been carrying and that has been corrected through the qualified institutional placement (QIP) proceeds. Also our own operational performance is consistently improving. So, I believe we are at the cusp of change and during this year you will see us back in profitability.

Latha: How much should we expect in terms of revenue growth in your consolidated entities including all the subsidiaries you have purchased?

A: It is very difficult to say that. Certainly we should be growing at 20-25 percent plus. Having said that inorganic strategy is the core part of our growth strategy and these are just the beginning so the action you are seeing from us I believe it will further gain momentum as we go long. Company should maintain upwards of 25-30 percent topline partly driven by organic and partly by inorganic.

Latha: And EBITDA?

A: EBITDA certainly will expand. However, in the medium-term our focus is not on EBITDA but fundamentally on creating value. So, we will continue disproportionate investments which will be in the area of formulation research and development (R&D). To be seeing it other way my focus is not EBITDA it is about creating value in the medium-term.

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