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Jan 24, 2012, 05.56 PM IST
Strides Arcolab aims to use the funds received through the sale of its Southeast Asian and Australian units to repay foreign currency convertible bondholders and reduce the debt, says group chief executive and vice chairman Arun Kumar.
The transaction with Australia’s Watson Pharmaceuticals for AUD 375 million was a simultaneous closing deal, meaning Strides Arcolab has already received the funds.
“We will use the funds to reduce our debt by USD 250 million and to repay our FCCBs maturing in June,” said Kumar, adding that the company’s debt-equity ratio will drop to 0.65-0.75 levels after the stake sale.
Below is an edited transcript of his interview with Reema Tendulkar and Ekta Batra. Also watch the accompanying video.
Q: Could you walk us through the modalities of this sale and what it means for you all?
A: Strides current focus is to build its injectables business. Having said that, its legacy pharmaceutical business has got significant value and we have been looking at some opportunities to unlock that value preposition. We have mandated Jeffries a couple of months ago and we managed good outcome today with a sale of our oscillation business to Watson which delivers close to about USD 400 million or AUD 375 million.
The transaction closed simultaneously today so it was a definite closing today. We expect this transaction to deleverage the company. We obviously have a significant FCCB repayment in June which will be addressed and also we intend to reduce our overall debt by about USD 250 million and grow our injectables business which is already a very high growth business.
So in terms of multiples, at around 20 times EBITDA this is one of the richest transactions in this part of the world. We are delighted that our branded generic pharmaceutical business in these markets have fetched us these kind of transaction valuation.
Q: What will the financials for the company look like, and what would it do in terms of consolidated revenues for you on EBITDA as well as the bottom line?
A: The Asian business constituted about 30% of our guided 2011 numbers, as you know we have a financial year closing December. However the EBITDA range is about 20% of the company’s total EBITDA. So we believe that this will not make a very significant impact on the overall size. At the moment not focusing so much on size but on the quality of the business and this transaction supports that strategy.
Q: When exactly this money is going to flow in which is AUD 375 million? What sort of break up in terms of payment can we expect and what sort of strengthening on the balance sheet can we see on an overall basis? What comfortable debt levels and FCCB redemption could we see from the company?
A: This is a simultaneous closing which effectively means that we have received 100% of the funds. So the funds are already being received because it was not a conditional closing. We expect debt reduction to be in the vicinity of USD 250 million which will include USD 120 million provision assuming that our FCCBs will not convert which is what we assumed today in June 2012. The significant increase in net worth we believe that the debt equity ratio which is currently upwards of 1.6-1.7 will come to in the range of 0.65-0.75.
Q: There is some amount of articles doing the rounds that you would only be retaining your injectables business going forward. Take us through the rationale in terms of divesting the branded generics business completely and what other asset sales can we look at going forward?
A: You need to address that question to people who are writing about that. We believe our legacy pharmaceutical business has got significant legs to run. Of course our focus is to build injectables business, eventually we believe that we will be a pure injectables company, but there is no timeline set, there is no pressure for us to do anything. Like this transaction, we have a very compelling valuation. So at the moment we cannot comment on speculations and you must just watch the space.
Q: Give us an update on the injectables business, you have a deal with fizzer. Any sort of milestone payments, any sort of scale up we could expect on the injectables business at all?
A: 2012 would be a significant ramp up year for Strides because we have got now 7 of our 8 manufacturing plants FDA approved. Bulk of our capacity needs for 2012 are available to us as you are probably aware the industry is going through an acute shortage of capacity. These new capacities that have been FDA approved recently will address that and we have been guiding that 2012 would be the big year for our injectables business and so the engine of growth on injectables still is at a very high level and we cannot at this moment be specific as we have just completed our financial year you need to wait a couple of weeks more before we announce our results.
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