PE major CVC Capital Partners in talks to pick up minority stake in Shilpa Medicare’s API business

APIs are the raw materials that give drugs the intended therapeutic effect.

Global private equity giant CVC Capital Partners has entered exclusive negotiations to pick up a significant minority stake in the active pharmaceutical ingredients (API) business of Hyderabad-based drug maker Shilpa Medicare, multiple industry sources with knowledge of the matter told Moneycontrol.

If talks between both parties fructify into an eventual transaction, this would be the Luxembourg-based private equity firm’s debut investment in India’s pharma sector, which has seen a sharp surge in the appetite for API targets over the last 18 months.

“CVC Capital Partners has held exclusive talks to pick up a 30 percent stake in the API business of Shilpa Medicare which had recently approved the transfer of the cash cow vertical to a separate arm,” one of the persons cited above told Moneycontrol.

Two other persons confirmed the discussions between both the parties.

All the three persons cited above spoke to Moneycontrol on condition of anonymity.

Moneycontrol is awaiting the response to an email query sent to CVC Capital Partners and Shilpa Medicare and has sent reminders. This article will be updated as soon as we hear from both the firms. Multiple phone calls and text messages to Shilpa Medicare MD Vishnukant Bhutada were left unanswered.

CVC CAPITAL PARTNERS: THE STORY SO FAR

Established in 1981, CVC is a leading global firm in private equity and credit with $114.8 billion of assets under management, $162.7 billion of funds committed and a global network of 24 local offices. It is majority-owned by its employees and led by its Managing Partners.

CVC's private equity platform manages $86.6 billion of assets and comprises four strategies: Europe/Americas; Asia;   Strategic Opportunities; and Growth Partners, each of which benefits from CVC's global platform. The firm’s India portfolio includes Bengaluru-based HealthCare Global Enterprises, the country’s largest cancer care provider, and UnitedLex, a legal services outsourcing firm.

SHILPA MEDICARE: THE API STRATEGY

Shilpa Medicare has a board meeting on August 14 to approve the quarterly results of the firm. On July 12, in an official intimation to the exchanges, the drug maker had announced that its board had “approved the transfer of API business of the company consisting of Unit-1 and Unit-2 situated at Raichur, Karnataka by way of slump sale to a wholly owned subsidiary of the company (to be incorporated) subject to the approval of shareholders.”

For the year ended March 31, 2021, the total income of the API business was Rs 631 crore, representing 73 percent of Rs 864 crore, the total income of the company. On the other hand, its net worth was Rs 251 crore, 15 percent of Rs 1,638 crore, the total net worth of the company.

The niche, independent arm would be engaged in the business of manufacturing active pharmaceuticals ingredients and intermediates, the firm said, adding that the slump sale for the transfer was expected to be completed on or before September 30, 2021.

According to Shilpa Medicare, there are multiple benefits of the API business spin-off which would -

1. result in operational synergies and lead to overall cost optimisation.
2. result in a focused approach with the desired management bandwidth and operational plans for each business of the company separately.
3. provide greater flexibility in pursuing long-term growth plans and strategies.
4. help the management to efficiently exploit the available funding opportunities for each business independently.

Over the past 18 months, deals like Advent-Ra Chem Pharma, Advent-ZCL Chemicals, PAG-Anjan Drugs, Carlyle – Sequent Scientific and Carlyle –Piramal Enterprises are examples of rising interest from private equity funds in the domestic API segment. Recently, drug major Glenmark Pharmaceuticals came out with an IPO of its API arm Glenmark Lifesciences.

APIs are the raw materials that give drugs the intended therapeutic effect. COVID-19 has rocked the global API hub China with several units shutting down. Consequently, the world is looking to reduce its exposure to China, and India, with its ready infrastructure and skill sets, has emerged as a preferred alternative. The government is also pushing for greater domestic manufacturing with incentives for the segment and manufacturing in special API parks. Promoters of API companies are looking to unlock value via stake sales or explore opportunistic exits at highly attractive valuations and thus private equity capital is chasing the sector which now has higher growth projections.