Drug maker Cadila Healthcare Ltd is in talks to raise around Rs1,000 crore through a qualified institutional placement (QIP) of shares, three people aware of the development said.
QIP is a capital-raising tool through which listed companies can sell equity shares, fully and partly convertible debentures, or any securities other than warrants that are convertible into stocks, to a qualified institutional buyer.
“The company has been in discussions with investment banks regarding its plans to raise funds through a QIP. It is expected to soon appoint banks for the same. They are looking to raise around Rs1,000 crore through the QIP,” said one of the two people cited above, requesting anonymity as the talks are private.
The QIP is likely to open in the next two-three months, he added.
The Ahmedabad-based company’s QIP plans come at a time when pharma stocks are under pressure amid record market highs.
The S&P BSE Healthcare index has shed close to 9% so far this year, while the benchmark Sensex has gained 17.1% in the same period.
Indian drugmakers are facing pricing pressures and greater regulatory scrutiny in the US, the largest market for most Indian pharma companies.
“Cadila, however, has been able to outperform the sector and has given positive returns this year. And, while the recent past has been troubling for the sector, the long-term outlook remains positive and institutional investors are keen to pick up stocks in the sector,” said the second person cited above, also requesting anonymity.
The Cadila stock has gained 32.4% since the start of the year.
An email sent on Monday night to Cadila enquiring about the company’s fundraising plans was not answered till press time.
According to brokerage Reliance Securities, Cadila’s strong product pipeline and investments in high margin products makes it an attractive bet.
“We believe that Cadila’s long-term fundamentals continue to remain intact on account of rich pending products pipeline (approximately 195 ANDAs) and investment in high-margin complex generic segment. Successful closure of US FDA (Food and Drug Administration) warning letter for Moraiya facility is likely in six months, following which we expect strong ramp-up in US business on the back of launch of niche products, which will lead to approximately 600 bps expansion in EBITDA margin to 26% over FY17-19E,” the brokerage said in a report on Tuesday.
After a tepid 2016, the QIP market has recovered this year, witnessing several large transactions.
According to primary market tracker Prime Database, till April end, nine companies raised Rs9,987 crore through QIPs, while 16 companies had raised Rs4,712 crore through this route in 2016.
Earlier in May, private sector lender Kotak Mahindra Bank Ltd raised over Rs5,800 crore through a QIP. The issue was the second- biggest share sale in India after State Bank of India’s Rs8,000 crore issue in January 2014.
Other large issuances this year include Yes Bank’s Rs4,907 crore QIP in March and Hindalco Industries Ltd’s Rs3,300 crore offering, also in March.
Other companies that raised funds through the QIP route this year include auto parts maker Minda Industries Ltd, state-owned lender United Bank of India, private sector lender DCB Bank Ltd, real estate firm Brigade Enterprises Ltd, Sagar Cements Ltd and Mercator Ltd.
Source: Mint