Blackstone, the world’s largest private equity fund, is set to submit a non-binding bid as early as next week to acquire the entire 33.47% promoter stake in Cipla, India’s third-largest generics company by revenues, said people in the know.
This will formally start a process which could see the eventual exit of the Hamied family from the company they created in 1935, and which has often been seen as a crusader against Big Pharma’s pricing strategies in emerging markets on account of its championing of affordable drugs.
The move by Blackstone, if it comes about, will also trigger an open offer for an additional 26% of the company. If fully subscribed, Blackstone can technically end up owning as much as 59.4% of the pharma major, in what would be one of the largest private equity-led buyouts in the Indian market.
Cipla’s current market valuation is Rs 94,043 crore. At that price, the promoter stake alone is valued at Rs 31,476 crore ($3.80 billion). If the open offer is fully subscribed, Blackstone may end up paying Rs 55,926 crore ($6.75 billion). There could be a significant control premium added too. The Cipla stock closed flat at Rs 1,165 on Thursday.
On July 27, CNBC TV was the first to report that Cipla promoters are exploring sale of a part of their holdings. Since its July 26 closing, the scrip is up 9%.
For the moment, Blackstone is working independently, but it is expected to form a consortium with some of its limited partners (LPs).
Cipla has been working with an adviser, but only four to five large private equity funds have been approached so far. Most funds are exploring a complete buyout of the promoter stake. With an offer on the table, Blackstone is likely to be the first off the blocks, added the people cited.
Morning Brief Podcast: Cipla saga: Did the doctor prescribe a sale?
Succession Saga?
Even though Cipla is helmed by Yusuf Hamied’s niece, Samina, as its executive vice-chairperson, it has professionalised the management ever since Hamied confidant Amar Lulla passed away in 2012. The company has turned around significantly under former Dr Reddy’s executive Umang Vohra.
In February 2022, the Cipla family pared down its then 36.11% stake by selling 2.5% of their shareholding in block deals. At the time, the founders assured investors that they remained fully committed and invested in Cipla’s future.
“It’s a difficult transaction to execute, considering the scale and size of the deal, but Blackstone has been scouting for large pharma assets for long. This is as marquee as it gets, even if it’s perceived to be fully priced.” said an investment banker aware of the ongoing discussions.
“Contrary to perception, global generic players like Teva, Viatris or Perrigo are either much smaller in size, or several have debt on their balance sheets; thus, their ability to take on large debt finance is lacking. There are several Indian players whose market cap is larger than some of these generic global players. That’s why, this time, the approach has been made only to buyout funds and that too only three to four names who have the appetite to cut such a large cheque,” the banker said.
Blackstone declined to comment. Mails to Cipla did not generate a response till press time on Wednesday.
Both YK Hamied and MK Hamied, the non-executive chairman and non-executive vice-chairman of Cipla, respectively, are octogenarians. “Samina spends a lot of time overseas, as does the CEO,” said an old time associate of the company, who spoke on condition of anonymity. “Others from geNext are not keen to run the business. Her brother, Kamil, long considered the successor-in-waiting, stepped down as chief strategy officer in 2015 to pursue other interests. He’s not even on the board currently. So, succession planning has long been an issue in the company.”
Robust Financials
However, in the last seven years since Vohra took over, Cipla’s revenues have risen 55% — from Rs 14,630 crore in FY17 to Rs 22,753 crore in FY23. During the period, its profit nearly tripled from Rs 1,006 crore to Rs 2,802 crore, and profitability improved, with Ebitda margin rising from under 18% to 22% at present. Its debt, too, reduced — from Rs 4,113 crore in FY17 to Rs 520 crore at the end of FY23. Mirroring the improved performance, the pharma company’s stock price doubled during the period.
“Ebitda and PAT are at all-time high levels on a quarterly basis. Cipla delivered a better-than-expected Q1 FY24 performance, led by superior executions in North America and domestic formulation segments. It is on track to build a complex product pipeline in the peptide space, and reduce compliance risk by incorporating alternate manufacturing sites,” said analysts at Motilal Oswal.
The company’s product portfolio spans complex generics as well as drugs in the respiratory, anti-retroviral, urology, cardiology, anti-infective and CNS (central nervous system) segments. The company earns over 40% of its revenues from India, 26% from North America, 14% from markets in Africa and the rest from other international markets.
In India, it is second-largest in the chronic branded prescription business, with a market share of 59%. It has the largest trade generic business among the Indian pharma companies and revenues from its consumer health (OTC) business exceed Rs 1,000 crore.
Cipla has 47 manufacturing sites around the world producing more than 50 dosage forms and over 1,500 generic products catering to 85 markets. It is now investing in therapies of the future, such as biosimilars, mRNA (messenger ribonucleic acid-based therapy that is a niche sitting between gene and protein therapies) and the new CAR(T), or chimeric antigen receptor (CAR) T-cell therapy.
Source: Economic Times