Sekhmet Pharmaventures is competing with Ahmedabad-based Nirma Group to acquire Glenmark Life Sciences (GLS), an 82.85% subsidiary of Glenmark Pharmaceuticals Ltd (GPL), as pharmacist promoter Glenn Saldanha looks to deleverage the balance sheet.

Sekhmet is an active pharma ingredient (API) platform backed by private equity groups PAG, CX Partners and Samara Capital. GLS is also an API developer and manufacturer. ChrysCapital, another homegrown fund, is also evaluating the opportunity of teaming up with limited partners GIC of Singapore and Canada’s CDPQ, said several people aware of the matter. However, the firm is yet to take a call on the matter and might opt out before binding bids are submitted by end of June.

India imported APIs and bulk drugs worth ₹35,000 crore in FY22. About 35% of India’s total API requirement came from imports, with China accounting for 65-70% of that.

Due diligence on
As part of its Make in India initiative, India is trying to incentivise domestic API manufacturing to reduce its dependence on China for these critical raw materials for the pharma industry.

GLS had a market cap of Rs 7,232 crore at market close on June 9. The share price, which hit a 52-week high of Rs 595 on Friday, has risen by nearly 52% in the last three months from Rs 386 in anticipation of a transaction. Sources said the company is expecting a significant control premium of Rs 700-720 per share – its listing price. That’s a 22% premium to the Friday close despite the sharp stock appreciation. This, said people directly involved, is a potential hurdle for the deal. A transaction will trigger an open offer that will allow minority shareholders to cash out.

Management meetings and due diligence are ongoing. Kotak Mahindra Capital is advisor to the transaction.

GLS, Nirma and Sekhmet didn’t respond to queries sent on Saturday. A ChrysCapital spokesperson declined to comment. GIC also didn’t respond.

Since its 2021 listing, the company’s share declined to a low of Rs 370 in March this year, down 48% from the IPO price. Since then the stock has risen.

Strong performer
“The company has been amongst the better performers in the API sector in India and has managed to consistently generate ebitda margins higher than 30% and ROICE in the range of 35-40% regularly,” said Navroz Mahudawala, founder, Candle Partners, a Mumbai-based investment bank.

Saldanha is keen to retain a small stake and is negotiating with potential bidders, most of who are unlikely to accede, said the people cited above. In mid-2018, Glenmark had attempted a minority transaction with True North. However, there were differences over valuation and the deal didn’t go through.

Subsequently, the business was spun out and listed as a separate arm. In FY18, the API business of Glenmark had revenue of Rs 878 crore and has since grown to Rs 2,161 crore with margins being maintained.

Cause of concern
About a third of its business comes from parent Glenmark Pharmaceuticals. This high dependence worries financial investors and is possibly one of the factors for the lower valuation of the stock in spite of improved financials.

Nirma ventured into life sciences when it acquired the ailing injectables business of Core Parenterals from its lenders in 2006-2007. In April, it announced the acquisition of Stericon Pharma, a Bengaluru-based eyedrop and contact lens solutions manufacturer from the founders as well as PE firm Invascent.

Aculife Healthcare Pvt Ltd, part of the group, sells medical devices and critical care medicines under the Nirlife and Oneuse brands. There was talk last year that Nirma was in the fray to acquire Maneesh Pharma. If it succeeds in acquiring GLS, it will be Nirma’s biggest purchase after buying LafargeHolcim’s cement assets for $1.4 billion in India in 2016.

However, non captive of external business continues to see strong momentum growing 19% YoY driven by regulated markets, as per the company’s presentation. It also has 16 out of the top 20 generics manufacturers as customers. Cardiovascular (36%) and CNS (14%) therapies contribute to 50%+ to the revenues. Chronic therapies overall contribute to 68%+ of the revenues. Currently a lion’s share of 90% business comes from Generic APIs and 10% from its CDMO activity though the growth is higher.

Ahmedabad headquartered detergent chemicals and cement focussed Nirma ventured into life sciences when it acquired the ailing injectables business of Core Parenterals from its lenders in 2006-2007. In April, it announced the acquisition of Stericon Pharma, a Bengaluru-based eyedrop and contact lens solutions manufacturer from the founders as well as PE firm Invascent.

Aculife Healthcare Pvt Ltd, part of the group, sells medical devices and critical care medicines under the Nirlife and Oneuse brands. There was talk last year that Nirma was in the fray to acquire Maneesh Pharma. If it succeeds in acquiring GLS, it will be Nirma’s biggest purchase after buying LafargeHolcim’s cement assets for $1.4 billion in India in 2016.

Multiple acquisitions
Sekhmet has made multiple acquisitions in the past few years. Last year, it acquired Hyderabad-based pharmaceutical firm Optimus Drugs, a manufacturer of advanced intermediates, APIs and finished drugs for Rs 2,000 crore. In 2020, the consortium acquired control of Chennai-based API manufacturer Anjan Drugs. PAG, an active investor in the pharmaceuticals space, had acquired Acme Formulation, a leading contract development and manufacturing outsourcing (CDMO) company, in 2021. The platform is expected to have posted Rs 350 crore ebitda on Rs 1,500 crore revenue in FY23.

ChrysCapital, has been one of the most successful pharma investors in the country for over a decade with multi baggers such as Intas Phrama, Zydus, Mankind, Eris Lifesciences and Ipca Labs as well as Curatio Healthcare and Hyderabad-based research firm GVK Bio.