Aurobindo calls off Eugia Pharma Specialities sale on valuation mismatch

The decision comes after months of negotiations.

ET had in its edition on March 21 reported that buyout fund Blackstone was closing in on the deal while Baring PE Asia was also in the fray.

But the offers given by the private equity funds didn’t meet company’s expectations, causing the management to abandon the sale process, people cited above said.

Aurobindo promoters, Hyderabad-based Ramprasad Reddy and his family were valuing the business at around Rs 26,000-30,000 crore ($3.4-4 billion). ( Keep it coz it shows the valuation gap)

“The bid-ask difference was huge and that was taking a long time to bridge,” an official in the know told ET. “With Aurobindo also turning net debt free, its own impetus to close the deal has reduced drastically.”

Mails to Aurobindo, Blackstone and Baring PE Asia did not generate a response as of press time Friday.

Eugia consists of general injectable, oncology injectable, oncology oral solids, and hormonals.

In the last three months, Aurobindo’s stock has fallen 22%, underperforming the Nifty Pharma Index that is down 10.46% and overall Nifty 50 that slipped 8.7%.

The plan submitted by the funds involved splitting the listed Aurobindo Pharma business and spin out Eugia into a separate listed company.

This would have seen an infusion of primary capital into Eugia, the country’s largest generics injectables company, a secondary sale of shares by the promoters, and an open offer, as ET reported earlier.

Blackstone’s offer included a primary infusion of around Rs 2,600- 3,000 crore into the company in lieu of an 8-10% stake. Upon demerger, Eugia’s shareholding would mirror that of the parent Aurobindo. The promoters would then divest 15-20% stake to the new incoming investor, who would also launch an open offer for an additional 25% of the company. If the open offer is fully successful, Blackstone was to end up owning 51-55% of the company for Rs 12,000–15,750 crore ($1.6-2.1 billion).

In 2021-22, 15% of Aurobindo’s total revenues of Rs 23,455 crore came from injectables.

The Hyderabad-based promoter family of V Ramprasad Reddy and K Nityanand Reddy currently own 51.8% of Aurobindo, a vertically integrated pharmaceutical formulations manufacturer set up in 1986. Its current market capitalisation is Rs 32,036 crore.

Aurobindo’s injectables business stood at around $438 million (Rs 3,470 crore) in FY22. It is expected to continue double-digit growth in FY23 and 24, and the company stick to the guidance of $650-700 million for the specialty business by FY24, Yugandhar Puvvala, CEO of Eugia Pharma, had said at an analyst call in May.

As a strategy, the company has decided to reduce its dependence on oral medicines and increase the emphasis on injectables.

“Irrespective of the restructuring or not, the business is committed to achieve the numbers,” Santhanam Subramanian, chief financial officer of Aurobindo Pharma, had said on restructuring plans of the injectables business in an analyst call in May.

The company had a total of 175 injectable ANDA filing as on March 31, 2022, out of which 119 have received final approval and the balance 56 are under review or have tentative approval.

A successful conclusion of the Eugia deal should also help Aurobindo to establish a value for the residual non-injectable business, an HSBC report had said in March.

Aurobindo earns about 11% revenue from the domestic market while 89% comes from international markets. In FY22, US revenue decreased by 1% year on year (YoY) to Rs11,122 crore and accounted for 47.4% of consolidated revenue. Aurobindo posted Ebitda of Rs 4,387 crore and a net profit of Rs 2,647 crore in FY22.

In May 2021, Aurobindo Pharma approved the transfer of its injectable assets into Eugia Pharma Specialities Ltd for “greater focus, attention, and specialisation”.

The move was seen as a precursor to unlock value, raise funds and eventually list it. As per stock exchange disclosures, the decision was to “augment fundraise and strategic tieups in future through joint ventures, etc”.

Aurobindo has two new injectable plants – Auro Cure in Visakhapatnam and one in New Jersey in the US – and both the plants are expected to generate revenues this fiscal.

Aurobindo also did the integration of Unit 4 and Unit 16 (the injectable manufacturing facilities in Telangana) into step down subsidiaries of Eugia for improved operational efficiency and better focus on the business segment. The transfer of Unit 4, which manufactures generic injectables and ophthalmic, was done for Rs 876 crore.

In 2019, Aurobindo had acquired a portfolio of seven branded oncology injectable products from Spectrum Pharmaceuticals for $160 million (Rs 1,200 crore), making its entry into the branded oncology market in the US. Aurobindo has built a strong presence in injectables across delivery systems such as liquid and lyophilised vials (with freeze drying), bags, ampoules, and prefilled syringes.

ET in its February 9 edition was the first to report that the company had shortlisted four PE funds including Blackstone and Baring for Eugia.

Kotak Mahindra Capital, McKinsey & Co, EY and Avendus are the advisers involved in the deal.