Lupin, which surged in trade last week following the US FDA approval for key respiratory drug gSpiriva, is weighing an internal restructuring exercise as part of which the pharma major plans to demerge its API (active pharmaceutical ingredients ) business, which is in revival mode, multiple industry sources with knowledge of the matter told Moneycontrol.
"Lupin is planning to carve out its API vertical in a bid to unlock value . It remains to be seen if a potential listing or a stake sale of the separated entity is explored at a later stage," said one of the persons above.
A second person confirmed the above internal rejig plans.
"Yes, the demerger option is being pursued and deliberations are at an advanced stage," this person said warning that the talks may or may not necessarily fructify into an eventual transaction.
Both the persons above spoke to Moneycontrol on the condition of anonymity.
In response to an email query from Moneycontrol, a Lupin spokesperson said, " At Lupin, we continuously evaluate strategic options to create value for our stakeholders. However, we do not comment on market speculation. We remain committed to our strategy of focusing on our core business areas while exploring opportunities for growth and expansion."
Lupin's peer Glenmark Pharma had undergone a similar exercise in May 2019, when the latter spun off its API business into a new entity called Glenmark Life Sciences, which made its public market debut in August 2021.
Currently, a sale process is going on for Glenmark Life Sciences as the parent is looking to pare debt.
On May 23, Moneycontrol was the first to report that Blackstone, KKR, BPEA EQT, PAG and Nirma group had expressed interest to acquire a controlling stake in Glenmark Lifesciences.
The API Resurgence
In the Q4 FY 23 earnings conference call, Vinita Gupta, CEO, Lupin referred to the resurgence in the firm's API business.
"Apart from India getting to double digit growth and U.S. business improvement, our API business recovered in the quarter with demand growth in our core products," she said.
ED and Global CFO Ramesh Swaminathan added, " API business sales grew by 14.6 percent on quarter-on-quarter basis. As core Cephalosporin API sales continued the path to recovery from higher sales in Cefaclor and 7-ACCA; On a year-on-year basis sales growth was 46.4 percent."
The firm's stock has risen by more than 24 percent in the last three months.
Speaking on recent trends in the segment, Sanjay Singh, Partner and Head of India and Co-Head of Asia Healthcare, said: " API businesses were impacted in the last 2-3 quarters due to Covid led de-stocking, China supply chain disruption and US price erosion. These factors seem to be easing and combined with the government's push for Indian manufacturing of APIs and global players looking at options outside of China, the domestic API industry should do well in FY24 and beyond."
Lupin: The API strategy
According to the 2022 annual report of Lupin, the API arm contributed around 6 percent of the total sales of the firm, with sales of Rs 990 crore.
"We are developing a robust portfolio of new API products to meet the needs of numerous therapies. Introducing new products to different markets will pave the way for sustainable growth of API business over the next five years. Further, the Indian government has launched a noteworthy initiative under the Production-Linked Incentive (PLI) scheme to achieve broader self-reliance in the API sector and reduce reliance on imports for key products," the annual report said.
It further added, " We have set in motion a series of initiatives in response to this important initiative, which includes the expansion of our API production capacities and the introduction of new products in our portfolio."
ALSO READ: Aim for 18% margin by FY24 end, Spiriva launch in Q2, says Lupin CFO
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