Promoters of Hyderabad-based Granules India revive exit plans

Krishna Prasad Chigurupati, founder of Granules India, one of the world’s top makers of the popular pain reliever paracetamol, has revived plans of the promoter family to evaluate a potential exit and sell a controlling stake, people familiar with the matter told Moneycontrol. The promoters hold 42.13 percent stake in the Hyderabad-headquartered firm, which set up a paracetamol facility in 1984.

“Valuations are extremely rosy in the API (active pharmaceutical ingredients) and CRAMS (contract research and manufacturing) segment and this is an opportune time for the promoter family to evaluate an exit. Investment bank Kotak Mahindra Capital has been mandated to find a suitable suitor for a majority stake,” said one of the persons cited above.

The Granules India stock has more than doubled in the last three months, reflecting the buoyancy in its segment. The market cap of Granules India was Rs 9,036 crore at close of trade on September 9.

“The deal is back in the market and has been launched recently. A few management meetings have been held and a few private equity players are already looking at Granules India,” a second person told Moneycontrol. According to earlier reports, the promoters of Granules India were also evaluating a potential sale in November 2019.

A third person said succession issues are also likely to be linked to the exit plans of the promoters. “They will look at a premium over the current market price,” this person said.

All three individuals spoke to Moneycontrol on condition of anonymity. Moneycontrol has sent multiple emails, text messages and reminders to the promoter Krishna Prasad and the firm’s officials but could not elicit an official comment or response. Multiple calls also went unanswered. An email query to Kotak Mahindra Capital went unanswered.

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 skillsets, has emerged as one of the preferred alternatives.  The government is also pushing for greater domestic manufacturing with special API parks & incentives for the segment.

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.

A GRANULAR LOOK AT THE FIRM

Granules India has three key business segments:  the core business which comprises ‘core molecules’—paracetamol, Ibuprofen, Metformin, Guaifenesin and Methocarbamol; the emerging business that focuses on manufacturing APIs with a focus on vertical integration; and the CRAMS segment, which focuses on contract research and manufacturing.

Prasad pioneered the concept of Pharmaceutical Formulations Intermediates (PFIs) as a cost-efficient product for makers of global formulations. (Prasad and wife Uma, who is a founding director of one of the country’s top wine brands, Krsma Estates, are avid marathoners. In 2015, the couple completed the World Marathon Challenge by running seven half marathons in seven continents in seven days. Prasad was 60 back then and Uma was 53.)

Read about how Karnataka-based KRSMA Estates became India's first vineyard to have made it to World's 50 Best Vineyards List.

For Granules, Q1FY21 has been particularly strong. Consolidated sales stood at Rs 735.60 crore – an increase of 23.57 percent from Rs 595.27 crore in Q1FY20. Net profit in Q1FY21 grew 33.89 percent YoY at Rs 111.45 crore.

"Strong demand for key products such as Metformin, Paracetamol, and Ibuprofen due to COVID-19 has translated to a robust Q1 for Granules. Ahead, we expect launches in formulations and additional capacity in PFIs to be key growth drivers,” said brokerage firm Anand Rathi in its recent report.

While most Indian drugmakers drifted away from highly commoditised molecules such as paracetamol and its ilk, Granules swam against the tide and has stuck to its guns over the years. Interestingly, Paracetamol, Ibuprofen, Metformin, Methocarbamol and Guaifenesin are old molecules, but are the first line of treatment, and they are difficult to be replaced that easily. The market size for these products is small, but is relatively stable.

As of March 31, 2020, Granules has filed 44 ANDAs (abbreviated new drug application) in the US, out of which 26 are approved. The company had filed 20 US DMFs (drug master file), according to data available until the end of financial year 2020.

(With inputs from Viswanath Pilla)