Homegrown PE fund ChrysCapital exploring stake sale in GVK Biosciences

ChrysCapital, one of India’s largest private equity firms, which has sealed blockbuster exits from Infosys, Mankind Pharma and Intas Pharma, is now looking to exit top contract research player GVK Biosciences, sources in the know told Moneycontrol.

GVK Biosciences is co-promoted by the GVK Group and DS Brar, the former CEO and managing director of Ranbaxy Laboratories.

“ChrysCapital has been invested for a few years now and multiples are favourable in the contract research segment which has seen a rise in demand.  Investment bank Jefferies has been mandated for the proposed transaction,” said one of the individuals cited above. A second individual confirmed the same.

ChrysCapital entered the firm in 2015 when it picked up the 10 percent stake held by Sequoia Capital. Back then, the secondary purchase valued GVK Biosciences at $250 million.

As of March 2020, the private equity fund held a 16.77 percent stake in the firm. On the other hand, Brar and his family members and the GVK family directly and indirectly held 41.01 percent shares each in the firm as of March 2020.

“Rival PE funds may express interest in the stake sale process.  Depending on valuations, potentially, there may be a larger deal at play here. Other shareholders in the firm may look to dilute stake or there may be a primary fund raise,” added a third individual.

All the three individuals spoke to Moneycontrol on the condition of anonymity. Jefferies declined to comment in response to a query from Moneycontrol. Moneycontrol is awaiting an email response from GVK Biosciences and ChrysCapital and has sent reminders. This article will be updated as soon as we hear from both.

ChrysCapital and its love affair with the pharma sector

Established in 1999, ChrysCapital is India’s oldest private equity firm.  It has approximately $4 billion of assets under management and has a specific focus on the pharma and healthcare space. Currently, it backs the likes of Mankind Pharma, Eris Lifesciences, Intas Pharma and dermatology products maker Curatio Healthcare. Other companies in its portfolio include Hero Fin Corp, NSE, South Indian Bank and Magma Fincorp.

ChrysCapital made its foray into the pharma space 14 years ago, when it picked up a 12.5 percent stake in Intas Pharma from ICICI Securities. It later raised its stake in the firm and in 2014, made a bumper profit by selling around 10 percent stake to Singapore investment firm Temasek.

In 2015, ChrysCapital exited Mankind Pharma and made ten-fold gains by selling its 11 percent stake to Capital International for $214 million. But in April 2018, it staged a sensational return to the Manforce condoms maker when it pipped global private equity giants to pick up a 10 percent stake in the firm for  $350 million. At the time, it was the largest private equity deal in the Indian pharma space. Pharma industry veteran Sanjiv Kaul is a partner with ChrysCapital and sits on the GVK Biosciences board.

A closer look at GVK Biosciences 

GVK Bio is one of the largest contract research organisations (CROs) in India, with a large clientele of over 450 companies, that includes several global pharma players. It offers integrated services across the drug discovery and development value chain, and provides research services in medicinal chemistry and biology to innovator pharma companies.

The firm also manufactures APIs and API intermediates and its annual revenues increased from Rs 795 crore in 2019 to Rs 951 crore in 2020. PAT ( profit after tax) rose from Rs 61 crore to Rs 99 crore during the same period.

Drug discovery services are the major revenue contributor, accounting for around 50 percent of the revenue in fiscal 2020. The company has more than 2,200 employees, with facilities in Hyderabad, Bengaluru, and Visakhapatnam, and in Morgan Hill, California.

Why is the contract research space ripe for M&A?

Due to a diversified product mix, high-end research services and significant cost benefits, pharma MNCs and global funds are taking an active interest in the fast-growing domestic CRAMS (contract research and manufacturing) and CDMO (contract development and manufacturing) segment where Indian players have emerged as the preferred partners in drug discovery and manufacturing. Reflecting the buoyancy in the segment, the shares of the listed peers of GVK Biosciences, namely Biocon arm Syngene, Dishman Carbogen and Suven Pharmaceuticals, have risen by 23 percent, 13 percent and 36 percent respectively in the last three months.

On February 12, 2020, Moneycontrol had exclusively reported that Hyderabad-based Suven Life Sciences was exploring a sale of its demerged CRAMS arm, Suven Pharmaceuticals.

Later, on June 30, Moneycontrol also reported that Bengaluru-based contract research and innovation services provider Anthem Biosciences Private Limited was looking to dilute a 10 percent stake in a fund-raising exercise aimed at a valuation of $1 billion.

According to a report by Research & Markets, the global contract research organisation (CRO) services market accounted for $39.03 billion in 2018 and is expected to reach $89.06 billion by 2027, growing at a CAGR of 9.6 percent during the forecast period.