Indoco in talks to sell part of India operations

Indoco Remedies is in initial discussions with investors such as Zydus Cadila and Lupin, along with private equity funds including TPG Capital Management and Temasek Holdings to sell part of its domestic business in a deal valued at Rs 500-600 crore. The transaction will help the Mumbai-based company, which owns nine manufacturing facilities in India, to focus on its high-margin global businesses. About 60% of Indoco’s annual sales revenue is contributed by domestic formulations, while 34% comes from export formulations, multiple sources with knowledge of the matter told ET.

Kotak, Deloitte and PwC are advising Indoco. “The process is in the initial stages. A couple of domestic strategics such as Zydus and Lupin, as well as a few financial investors, have been sounded out,” said a source cited above. In an emailed reply to ET, an Indoco spokesperson said, “The news is speculative and there’s no truth in it.” TPG and Temasek declined to comment. Mails sent to Lupin and Zydus did not elicit any responses till press time.

Indoco’s domestic formulations sales for the year ended March 31, 2018, were flat at Rs 595 crore, as against Rs 585 crore last year (growth of 1.7%). Sales of international formulations were at Rs 347 crore, against Rs 414 crore in the year ago period. Overall, net sales were Rs 1,017 crore (Rs 1,067 crore), a fall of 4.6%.

Indoco’s nine domestic marketing divisions cater to respiratory, anti-infectives, dental care, pain management, gastroenterology, ophthalmic, cardiovascular, anti-diabetics and anti-obesity therapeutic segments.

Zydus and Lupin are looking to consolidate positions in the Indian market, while funds such as TPG have been consistent investors in the healthcare and pharma space. Singaporean sovereign fund Temasek has a $600-million exposure in Indian pharmaceuticals, including in Sun Pharma, Glen Pharma and Intas. Indian domestic formulation business had always been on the radar of multinationals who wanted to strengthen their presence in third largest pharma market globally by volume.

However, the USFDA import alerts implemented on Indian manufacturers have made the buyers cautious, causing a fall on the inbound acquisitions in Indian market.

“Consolidation among buyer groups, squeezing of profitability of manufacturers, impairment of launch momentum due to regulatory overhang at key facilities and an increasing shift to complex generics/speciality/branded products makes 2015-18 the first real stress period for Indian pharma,” said a note by JM Financial last year. Moderation in valuation expectations, divestments by large global generics players and the mentioned challenges should drive interesting inorganic possibilities for the sector, it said.