Race For Auro Pharma Injectable Biz: Blackstone, Barings PE Asia & KKR In Final Round

Bulge bracket private equity funds Blackstone, Barings PE Asia and KKR have entered the final leg in a 3-way race for picking up a majority stake in the injectable business of Hyderabad-based Aurobindo Pharma, multiple industry sources in the know told Moneycontrol.

“Blackstone, Barings PE Asia and KKR are in advanced discussions with Aurobindo Pharma which is looking to unlock value via this proposed transaction. All 3 are buyout funds and will be keen on a controlling stake,” said one of the persons cited above.

Two other persons confirmed the above adding that the private equity funds were conducting due diligence. “ Blackstone is aggressively pursuing this deal and is being viewed currently as a strong contender,” one of them added.

In May 2021, in a move to improve operational efficiency, the drugmaker had approved the transfer of its injectable assets into a subsidiary called Eugia Pharma Specialities Limited for “greater focus, attention, and specialization” and also to “ augment fundraise and strategic tie-ups in future through joint ventures, etc” according to exchange disclosures.

The transfer of Unit IV, which manufactures generic injectables and ophthalmics, was done for Rs 876 crores. The unit clocked revenues of Rs 926 crore in FY21 and accounted for 5.86% of the firm’s turnover on a standalone basis.

A fourth person said Kotak Mahindra Capital was the sell side advisor for the deal which was likely to value the entire injectable business of Aurobindo Pharma between $3.5 bn to $4.5 bn. This person added that since the cheque size was big, the possibility of a consortium of bidders could not be ruled out.

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

Moneycontrol is awaiting responses to email queries sent to Aurobindo Pharma, Barings PE Asia and Kotak Mahindra Capital and has sent reminders and will update this article once we hear from these firms. Blackstone and KKR declined to comment.

THE INJECTABLE STRATEGY

In response to a query on investors eyeing the injectables business during an analyst call in February, the CFO Subramanian Santhanan said -

“The BOD has constituted the committee of independent directors on November 8th for comprehensive evaluation of various options and alternatives, including the demerger for restructuring Eugia and related arrangement. Their evaluation by the COD is ongoing with inputs also being taken from certain advisors.

We will inform the stock exchange once an option has been finalized and approved by the Board of Directors and as it is required by the applicable law and regulations. The company is fully cognizant of the need to create shareholders value and the Committee of Independent Directors is also aware of this.”

The management further added, “ Eugia is all about not only injectable, It is a complete specialty business. It is general injectable, oncology injectable, oncology oral solids and hormonals. We are clocking at a range of around $100-110 million every quarter; that is the last 3 to 4 quarters performance. We expect that it would go up to double-digit growth next year.”

A recent research report by Yes Securities said that a combination of prices erosion in US, lacklustre injectable sales and increased input costs had hurt the firm’s performance in Q3 but a sharp rebound was expected in injectable sales in America.

“While input costs may have passed a peak and Q4 can see stability, US oral solids business would take longer time to cover up the eroded base. However, management's aim towards monetization of injectables and US$650‐700mn sales by FY24 remains intact. We continue to expect a sharper rebound in injectable sales in US though Europe would gain traction only after commissioning of Vizag facility in middle of FY23. Domestic foray and aspiration of Rs10bn revenues in 3 years would need an investment of the order of 4x sales, the typical benchmark for domestic branded acquisitions,” the report added.

A note by ICICI Direct Research on the firms Q3FY22 earnings conference call highlights said – “Global Injectable sales at US$110 million. The management guided for double digit growth and reiterated aspiration of US$650-700 million revenue by FY24. Around 10-15 launches are planned for FY23 while more assets and settlement launches are expected to follow in FY24 .”

Also Read: Aurobindo Pharma plans local market foray with buyouts, targets Rs 1,000 crore domestic formulation sales

Aurobindo Pharma was founded in 1986 by  P.V. Ramprasad Reddy, K. Nityananda Reddy, and others.

According to its website, “The formulation business is systematically organized with a divisional structure and has a focused team for key international markets. Leveraging its large manufacturing infrastructure for APIs and formulations, wide and diversified basket of products and confidence of its customers, Aurobindo achieved revenue of USD 3.3 billion in FY 2020-2021. Aurobindo’s 11 units for APIs / intermediates and 15 units (10 in India, 3 in USA, 1 in Brazil and 1 in Portugal) for formulations are designed to meet the requirements of both advanced as well as emerging market opportunities.”

“Aurobindo exports to over 150 countries across the globe with around 90% of revenues derived from international operations. With multiple facilities approved by leading regulatory agencies such as USFDA, EU GMP, UK MHRA, South Africa-MCC, Health Canada, WHO, and Brazil ANVISA, Aurobindo makes use of in-house R&D for rapid filing of patents, Drug Master Files (DMFs), Abbreviated New Drug Applications (ANDAs) and formulation dossiers across the world. Aurobindo Pharma is among the largest filers of DMFs and ANDAs in India,” the website adds.