Debt reduction of Glenmark Pharmaceuticals and turning it net cash positive are the two major benefits from the divestment of majority stake in Glenmark Life Sciences (GLS), Chairman and MD Glen Saldanha said addressing a press conference on September 21.
"The proceeds from this transaction will go into repaying debt. The net debt of Glenmark is around Rs 3,000 crore or so, and the gross debt is around Rs 4,600 crore or so. We will hold this cash in the balance sheet, and our goal is to be net cash positive for the next two years. The total debt gets extinguished after the deal," Saldanha said. The company had said in its first quarter investor presentation for FY 24 that it is a “priority to enhance free cash generation for further debt reduction”.
Saldanha added that the management of Glenmark Life Sciences will remain intact. Going forward, the company will focus will on three things- growth, its Return on Capital Employed and being net cash positive, he added.
Minority shareholders of Glenmark Life Sciences will benefit over a period of time. Glenmark Life Sciences had its IPO in August 2021 and manufactures Active Pharmaceutical Ingredients (APIs) for chronic and acute therapeutic areas.
Regarding the timing of the transaction, the CMD said, “timing of the transaction is as good a time as any, as synergies between the companies are reducing”. Glenmark Pharma currently buys less than 15 percent of API from GLS. The company sources a lot of API ingredients from India, a few from Europe and is not heavily dependent on China.
The guidance of Glenmark Pharma for FY 24 will remain unchanged as the company expects the transaction to complete by Q4 of FY 2024. The sale will affect revenue in the short-term, but "we expect double-digit growth within four to six quarters", Saldanha said.
Saldanha also said that majority of Glenmark's current business comes from branded portfolio in respiratory, oncology and dermatology. This will continue to grow as the company's goal is to play in complex generics space and not in commodity generics in the US. "The US generics business, which needs the vertical integration for cost benefits, we don't want to play in that space much," he added.
"We draw 65 percent of our overall revenues from the branded business. The goal is to continue our presence in the branded space both in India and emerging markets in the world as well as Europe," Saldanha told reporters.
Saldanha said that strategic partners like Nirma bring stability to the company. Strategic partners’ goal is long term and to grow the business and they are employee-oriented rather than a private equity investor.
Currently, the company spends around 8-8.5 percent of its sales on R&D. This investment will come down to 7-7.5 percent after the transaction, the CMD added. Glenmark Pharma’s margins will continue to escalate due to low R&D spend, he added.
Earlier on September 21, Glenmark Pharma entered into a definitive agreement with Nirma Limited to divest 75 percent stake in its subsidiary, Glenmark Life Sciences Limited (GLS), at a price of Rs 615/- per share for an aggregate consideration of Rs 5,651.5 crore, subject to closing adjustments on September 21. Glenmark Pharma will continue to own 7.84 percent in GLS, and pursuant to the transaction, Nirma will make a mandatory open offer to all public shareholders of GLS.
Glenmark Pharma, Glenmark Lifesciences and Nirma have agreed to a non-compete and non-solicit arrangements for a specified period.
Earlier, Moneycontrol had reported that a raft of private equity funds – KKR, Blackstone, BPEA EQT and PAG – had also expressed preliminary interest in buying the company. Nirma was also reported to be in the race.
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