New Delhi: Alkem Laboratories Ltd, India’s fifth-largest branded pharmaceutical company, has joined the race for JB Chemicals and Pharmaceuticals as KKR and Co looks to cash out of the 48-year-old company on the back of a significant rise in market value, said people with knowledge of the matter.
This coincides with Torrent Pharmaceuticals, India’s fifth-largest drugmaker, pulling out of negotiations over valuation differences, said the people cited above. Torrent had been seen as the frontrunner for the likely $3 billion buyout of the Mumbai-based company. Other suitors such as EQT are also said to have baulked at the target’s rising share price. Torrent may resume discussions if the valuation declines.
Ahmedabad-based Torrent had been in active negotiations with global banks to finance a potential deal after missing out on Cipla and Biogaran, France’s largest generics company. However, earlier this week, Torrent’s management told lenders that it’s pausing negotiations with KKR.
JB Chemicals ended Thursday with a market capitalisation of Rs 29,192.24 crore, its share having shot up 16 per cent since the beginning of the year. Alkem’s market capitalisation is Rs 75,880.73 crore while that of Torrent Pharma is Rs 1.17 lakh crore.
Alkem’s Largest M&A
Alkem, KKR and Torrent declined to comment. Alkem MD Sandeep Singh didn’t respond to queries.
If successful, this will be Alkem’s largest M&A ever and will potentially move it to fourth place, replacing Mankind, in the domestic formulations market. It will further strengthen Alkem’s presence in the chronic segment, which accounts for 18 per cent of revenue, whereas for JB Chem, it’s nearly half.
The 52-year professionally run Alkem is overseen by the third generation of the Singh family, Sandeep and Anirudh. The promoters own 56.38 per cent of the company between various factions of the family.
For more than 15 years, Alkem has defended the number 1 position in anti-infectives by successfully tapping into the largest sub-therapy area, i.e. anti-bacterial. At the same time, same time, GI and VMN have injected growth in the company. The company has slowly diversified its revenue base in chronic/semi-chronic therapies such as Neuro/CNS, derma, cardiac and anti-diabetic while maintaining its core strength in its major therapy areas—anti-infectives, gastro-intestinal (GI), vitamins and minerals (VMN), and pain; which account for 75 per cent of its branded sales.
Under its new CEO, Vikas Gupta, a former Cipla executive, the company ha sidentified a few core areas for growth – consolidating market share in chronic therapies with focus on anti-diabetic, neurology, dermatology, CNS, and respiratory; improving coverage among specialist doctors as well as targeting tier II to IV cities and improving digitisation of operations.
“We are looking at opportunities that comes up on table,” said Gupta at company’s last month earnings call. “We are actually looking forward to any acquisition that we can do that can add value to our overall scheme of things and which are more strategic in nature.”
According to Bansi Desai of JP Morgan, Alkem’s margin improvement will be primarily driven by improvement in product mix, operational efficiencies and higher medical representative productivity. “The company has identified med-tech as an strategic adjacency,” he said. It has already tied up with US medical devices company Exactech following an in-licensing agreement for hip and knee replacement implants to leverage on its leadership position in orthopaedics segment.
Even then, analysts believe, Alkem may need to partner with a PE fund to finance such a large transaction. Alkem Labs has a net cash of Rs 3845 crore as of June 30, 2024. It has a total debt of Rs 1418 crore as on March 31, 2024.
But with some members of the promoters group monetising part of their holdings in the company through block trades between June-August of this year, there has been speculation of a promoter sale. What added to the chatter was sections of the family expressing their desire to relocate overseas. Those plans have not materialised and they are back in the country.
“The new management plans to pursue profitable growth in India, emerging markets and CDMO business,” said Alok Dalal of Jefferies. Biologics is another growth area identified by the management that sees growth in emerging markets and in India.
KKR’s investment arm, TAU Investment, currently owns 53.78 per cent of JB Chemicals. The acquisition will trigger an open offer for another 26 per cent as it will lead to a change of control, which means a new owner could end up paying as much as Rs 26,202 crore ($3.11 billion). KKR had acquired the stake for about Rs 3,100 crore, or Rs 745 per share, from the founding Mody family in July 2020. JB Chemicals closed at Rs 1,875/ share on the BSE on Thursday.
JB Chem offers a healthy cocktail of a robust domestic franchise as well as a niche contract manufacturing organisation (CMO) play aside from exports. The company has a few star brands such as Nicardia, Metrogyl, Cilacar and Rantac and has also scooped up Novartis’ heart failure drug brand Azmarda.
After the acquisition, KKR appointed Cipla veteran Nikhil Chopra in October 2020 as JB’s chief executive. He put the Mumbai-based drugmaker on an accelerated growth path, making four acquisitions and investing $200 million in the last four years along with a fresh go to-market strategy involving therapy diversification, raising the productivity of medical representatives, optimising costs, making big brands even larger, and chronic therapies.
