Alkem Laboratories Ltd's promoter, the Singh family, has initiated talks to sell a substantial stake in the company to private equity firms, people aware of the development said, adding that the owners may be open to divesting a controlling stake.
The promoters are working with investment bank Nomura to scout for buyers for their stake in India’s fifth largest drugmaker, the people cited above said, requesting anonymity.
Alkem holds a dominant position in the areas of anti-infectives, gastrointestinal, pain management drugs and supplements. It also has a growing portfolio of products for the treatment of chronic conditions such as diabetes, neurology, cardiology, dermatology, and urology.
The company and its banker have reached out to private equity firms such as KKR, Blackstone and EQT, among others, to gauge their interest in acquiring a substantial stake, possibly a controlling one in the listed company.
The people cited added that the sale of a controlling stake is dependent on the valuation the promoters get, and they may not go through with the sale if the valuations are not attractive enough. Some family members may continue to stay invested in the company, the people said.
Alkem, founded in 1973 by Samprada Singh and his brother Basudeo, is now led by third-generation family member Sandeep Singh, grandson of the founder.
Currently, promoters hold a 56.38 percent stake in Alkem, which is worth around Rs 42,283 crore as of Alkem’s closing price on Wednesday.
A large stake acquisition would trigger a mandatory open offer under SEBI norms, requiring the buyer to buy an additional 26 percent stake from public shareholders at an estimated cost of about Rs 19,500 crore.
Alkem's stock has risen by about 21 percent year to date to Rs 6,272.9.
Emails sent to spokespeople for Alkem Laboratories did not elicit a response till publication. KKR and EQT declined to comment. A spokesperson for Blackstone denied the development.
Biggest PE deal in the pharma space
The promoter stake sale in Alkem, if it goes through, will be the biggest private equity buyout in the pharma space, with the promoter stake itself being worth almost $5 billion, and among the biggest PE deals in India.
Last year, the Hameid family of Cipla Ltd explored selling its 33.48 percent stake in one of India’s top pharma companies. PE firms such as Blackstone evinced interest to buy the Hameid family's stake for as much as $3.8 billion but talks eventually collapsed due to difference in valuations between the parties.
Currently, several suitors are battling to acquire the controlling stake of KKR in JB Chemicals and Pharmaceuticals Ltd, which is worth approximately Rs 15,600 crore (approximately $1.85 billion).
Also Read: KKR taps Torrent Pharmaceuticals for JB Pharma stake sale
The Alkem Business
Alkem operates 19 manufacturing facilities and research and development (R&D) centres across India and the US to develop and manufacture generic formulations, active pharmaceutical ingredients (APIs) and biosimilars. Apart from India, the company has a meaningful presence in the US, Latin America, Australia, and several other Asian countries.
In India, its manufacturing facilities are located in Gujarat, Pune, Daman, Baddi, Indore and Sikkim. The manufacturing facilities possess the requisite regulatory approvals from drug regulatory agencies such as the US Food and Drug Administration (USFDA); the Medicine and Healthcare products Regulatory Agency (MHRA - UK) and other international certifications.
These USFDA certified facilities put companies such as Alkem in an advantageous position with the US is in the process of implementing the US Biosecure Act, which essentially bars US pharma companies from sourcing raw materials, such as active pharmaceutical ingredients (APIs), from countries that pose a national security risk, with China being the primary target. This shift opens up a significant opportunity for Indian pharma companies, particularly those with USFDA-approved facilities, to fill the supply gap.
Alkem has one API manufacturing plant in the US in California and two in India.
Also Read: What’s the importance of US Biosecure Act for India?
For the quarter ended June 30, Alkem reported a revenue of Rs 3,031.8 crore, up 2.2 percent from a year earlier.
The India business contributed Rs 2,022.3 crore to the topline in Q1 FY25, while international business clocked a revenue of Rs 967.7 crore with a 6.4 percent YoY growth.
The company saw a sharp 56.4 percent YoY growth in its Ebitda to Rs 608.6 crore in the quarter, while net profit grew 90.1 percent growth to Rs 535.2 crore.
Alkem’s Ebitda margin improved to 20.1 percent in Q1 FY25 from 13.1 percent in the same period last year.
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