The promoters, Venkateswarlu Jasti and his family, who own 60% of the company, are looking to halve their shareholding in favour of a new investor, capitalising on growing demand among strategic and financial investors worldwide to own businesses supplying bulk drugs to global pharma majors.
The sale of shares will trigger an open offer for another 26% of the company, giving the incoming investor a path to control with an around 56% ownership that could cost as much as Rs 6,500 crore at the current market price.
The shortlisted candidates have initiated due diligence before submitting binding offers, likely in March.
An email and text messages sent to Suven Pharma chairman Jasti did not elicit any responses till press time Tuesday. A Blackstone spokesperson declined to comment, while Warburg and CVC did not respond to emails.
In 2019, Suven Life Sciences had demerged its contract manufacturing business, Suven Pharmaceuticals, for value unlocking, and listed it in March 2020.
Suven is in the business of contract development and manufacturing operations (CDMO), supporting the global life sciences industry and fine chemical majors. Its services include custom synthesis, process R&D, scale-up and contract manufacturing of intermediates, active pharma ingredients and formulations. The business comprises three segments — CDMO, specialty chemicals and contract technical services.
The market capitalisation of the company was Rs 11,423 on the closing stock price on the BSE Tuesday — it ended the day at Rs 448.75, down 1.73%.
The stock has appreciated 10.7% in past one month in anticipation of a sale. Over the past six months, it has gained 70%.
The promoters may sell more to facilitate a change of control, if need be, the people said.
Barclays is helping the promoters find a buyer.
If the deal materialises, it would be the debut deal of US-based CVC Capital in the Indian pharma and healthcare sector. In 2018, CVC struck its first deal in India by buying out enterprise legal services firm UnitedLex BPO. Last year, it had raised $4.5 billion for its fifth Asia-Pacific fund.
Suven Pharma is among the oldest players in the country that exclusively deals with pharma and speciality chemicals innovators. It works with Big Pharma as well as the agro-chemicals industry, said an analyst familiar with the company.
Its R&D capabilities and client roster had also attracted other budge-bracket players like KKR, Carlyle and possibly even Advent, said the people in the know, who spoke on the condition of anonymity.
The company posted a net profit of Rs270 crore and Ebitda of Rs403 crore on revenue of Rs852 crore in the fiscal year ended March 2020.
Its CDMO business had registered revenue of Rs468 crore, contributing about 54% to the company topline, while specialty chemicals had accounted for 36% with revenue of Rs304 crore.
“With the demerger of the Life Science business, Suven Pharma is all set for its new journey that will focus more on productions and better revenue contributions from its formulations foray. With strong corporate governance, growth record and lower leverage, Suven is trading at price to earnings of 18x FY23E (estimated FY23 earnings), which is a discount of 10-15% to large listed formulation,” Prabhudas Liladhar analyst Surajoit Pal said.
Many of the global pharmaceutical majors keep outsourcing their drug manufacturing to countries such as India, home to the largest number of US Food and Drug Administration-approved plants. Rising costs and regulatory pressure in developed markets are the major reasons behind the move from western counterparts.
The current global pharma outsourcing market is estimated at $90 billion and is projected to record a compounded annual growth rate of about 7% to reach $117 billion by 2023, and represent about 30% of the overall manufacturing requirements.
At present, China holds about 30% of the global drug manufacturing market while India has 10%. According to a recent report by Technavio, the global CDMO outsourcing market is poised to grow by $36.51 billion during 2019-2023, progressing at a CAGR of almost 8%.
Increasing customer diversification away from China with respect to bulk drug policy, coupled with some countries adopting a ‘China-plus one’ policy, has led to increased demand for active pharmaceutical ingredients from India, said a recent report from Crisil.
India’s formulation and bulk drug exports improved 18% and 9% on-year during the first half of this fiscal year, compared with an 11% increase and a 1% fall, respectively, for the whole of fiscal 2020. A spike in demand for pharma products, induced by the Covid-19 pandemic, and hoarding of supplies by some nations in the wake of production disruptions, have boosted exports, the Crisil report added.