CVC Capital, Advent International and Bain Capital, among others have evinced interest in acquiring Porus Laboratories, said two people in the know.
Although formal bids will be placed in April, Porus Laboratories is seeking ₹2,500 crore for the transaction, they said.
JP Morgan is the investment banker for the deal. Hyderabad-headquartered Porus Labs runs a pharma and chemicals business developing and manufacturing pharma intermediates and specialty chemicals. N. Purushothama Rao founded the company in 1996.
Bain Capital, Advent and JP Morgan declined to comment. CVC Capital and Porus did not respond to queries. If CVC places a bid and wins, it is likely to use Porus Laboratories to expand its portfolio firm Sajjan India, which makes ingredients for pharmaceuticals and specialty chemicals, of they said, seeking anonymity. In February 2022, CVC and Canada Pension Plan Investment Board had acquired Sajjan India for ₹7,000 crore.
Advent has been building a platform for pharmaceuticals and specialty chemicals under Cohance Lifesciences. It has so far acquired three companies —RA Chem, ZCL Chemicals and Avra Laboratories—and is building Cohance to produce niche intermediates, such as active pharmaceuticals Ingredients (APIs) , pre-formulation intermediates, formulations and specialty chemicals across innovator and generic molecules, according to its website.
Bain Capital had invested in listed entity Himadri Specialty Chemicals, besides other specialty chemicals firms globally.
In FY22, Porus posted sales of ₹678.4 crore on earnings before interest, taxes, depreciation and amortization of ₹122.9 crore. While net sales were ₹806.7 crore in FY23, over EBITDA of ₹241.6 crore. Andhra Pradesh Pollution Control Board shut down one of Porus Labs’ manufacturing facilities, after a fire in April 2022, which contributed 17% to its revenue, according to Crisil Ratings. It has long-term contracts, which should aid steady order flow, it added.
The company bounced back in revenue and Ebitda this fiscal year, but FY23 financials could not be ascertained.
However, Crisil warned of a concentration risk. “The top three products and customers contribute to substantial share of the revenue, thereby exposing the company to concentration risks. Nevertheless, the end-user industries in which the products are used are diversified, thus mitigating the risk to a certain extent. Furthermore, the company is currently undertaking debt-funded capex to manufacture agro-chemicals and this is expected to result in substantial revenue growth from fiscal 2023 onwards. It should also result in diversification of products and customer profile to some extent over the medium term,” according to the report dated October 20, 2022.
Overall, the pharmaceuticals ingredients and specialty chemicals industry in India is also expected to benefit from the “China plus one” strategy which some global companies have adopted to diversify their supply chain and manufacturing bases.
“The Indian specialty chemicals industry will outpace its Chinese counterpart and double its share of the global market to approximately 6% by 2026 from 3-4% in fiscal 2021,” according a Crisil Ratings report from March 2022. “Growth will be powered by two ingredients — strong tailwinds in exports due a shift in global supply chain driven by the China+1 policy of vendors and demand recovery in domestic end-user segments,” the report added.
