KKR, Bain Capital and Blackstone in race for majority stake in Granules India

Three global private equity heavyweights, namely KKR, Bain Capital and Blackstone have expressed preliminary interest in acquiring a controlling stake in listed API (active pharmaceutical ingredients ) and CRAMS (contract research and manufacturing) firm Granules India, sources in the know told Moneycontrol.

On September 10, 2020, Moneycontrol was the first to report that the promoter family of Granules India had revived plans for a potential exit from the company and was evaluating the sale of a majority stake at a premium valuation.

“Blackstone, KKR and Bain Capital have submitted non-binding bids for the proposed transaction,” said one of the individuals cited above.

A second individual confirmed the same.

Investment bank Kotak Mahindra Capital has been engaged by the promoters of Granules India to scout for buyers, he added.

“Control deals of this scale are not very common in the pharma space, and hence the interest from private equity funds. The idea would be to use this as a platform and grow further,” added the first individual.

If these leading private equity funds proceed further, the stage seems set for a potential three-way bidding war to take over the Hyderabad-based firm, which is one of the world’s top makers of the popular pain reliever paracetamol.

Both the individuals above spoke to Moneycontrol on condition of anonymity.

In response to an email query from Moneycontrol, Priyanka Chigurupati, Executive- Director- US Generics, Granules USA said, “We do not comment on such speculation by the media. We communicate with many investors and evaluate many opportunities daily  but we will not confirm or deny any speculation. As a public company, we will continue to comply with all disclosures as needed by the Securities Exchange Board of India.” KKR, Blackstone and Bain Capital declined to comment. An email query to Kotak Mahindra Capital went unanswered.

Moneycontrol could not verify the value of the bids or whether any additional suitors had submitted non-binding bids. At the end of day’s trade on September 24, the market cap of Granules India stood at Rs 8,935 crore. The promoters held 42.13 percent stake as of June 2020.

The Moneycontrol report of September 10, 2020, had cited favourable sectoral valuations and succession planning issues as reasons for the proposed exit. According to earlier reports, the promoters of Granules India were also evaluating a potential sale in November 2019.

According to brokerage firm Anand Rathi, "Strong demand for key products such as Metformin, Paracetamol, and Ibuprofen due to COVID-19 has translated to a robust Q1 for Granules.”

Peer firm Motilal Oswal was bullish on the firm in its recent report. “Granules has multiple growth levers, such as (a) the ANDA ( abbreviated new drug application) pipeline for US generics (with some products having limited competition opportunity), which should drive an increase in the share of formulations for developed markets, (b) enhanced reach for core molecules, and (c) reduced opex through backward integration.” The brokerage expects earnings CAGR of 31% over FY20-22E.

In July 2020, KKR agreed to buy 54 percent stake in Mumbai-based drug maker JB Chemicals for Rs 3,100 crore.  Bain Capital backs Pune-based Emcure Pharma which has deferred its IPO plans. On the other hand, Blackstone is the largest owner of commercial real estate in India.

Recent deals like Advent-Ra Chem Pharma, Carlyle–Sequent Scientific and Carlyle –Piramal Enterprises are examples of rising interest from private equity funds in the domestic API segment.