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ICICI VC, Leverage India Fund and Swiss Technology are looking at part or full exit by the pharma player.
ICICI Venture Capital and Leverage India Fund (jointly sponsored by IL&FS and Punjab National Bank) are among the few other financial investors in mid-sized drugmaker Arch Pharmalabs who are making a part exit in the Mumbai-based company’s public issue.
Arch Pharma is looking to raise Rs 135 crore through a fresh issue of shares that will go alongside an offer for sale by six shareholders including four funds managed by ICICI Venture Capital, Swiss Technology Venture Capital Fund besides Leverage India Fund.
ICICI Venture is fully exiting its investment through India Advantage Fund II, Dynamic India Fund I and Rainbow Fund while part exiting shares held under India Advantage Fund V. Swiss Technology Venture Capital Fund is selling its entire block of 8.16% pre issue stake. Leverage India Fund is selling a little less than a third of its 7.28% holding.
The last equity transaction in the company involved a preferential allotment to Mitsui & Co at Rs 490 per share. If this is taken as a benchmark then the company is looking at maximum fresh issue of 2.75 million shares translating into equity dilution of around 10% of post issue equity base. This would mean the company is seeking valuation of Rs 1,347.5 crore or more (around $300 million), according to VCCircle estimates.
PRIVATE EQUITY GAINS
Swiss Technology Venture Capital Fund had put in Rs 20 crore to acquire shares of the company partly through conversion of cumulative convertible preference shares and rights issue of shares in the 2005-2008 period. Its average cost of purchase is pegged at Rs 83.3 per share. The fund had part exited last year by selling shares to mid-stage India-focused private equity fund Granite Hill India Opportunities Fund at Rs 400 per share or 4.8x returns. It also sold some shares to Emerging India Focus Fund and India Infoline Venture Capital Fund at the same time at the same price. If it sells shares at Rs 490 per share in the IPO, it would earn around Rs 99 crore for its remaining stake generating aggregate returns of 5.7x on its original investment (including part exits).
Leverage India Fund has put in around Rs 26.4 crore (2005-08) in the company through conversion of convertible debenture into equity and a rights issue with average cost of purchase estimated at Rs 124.4 a piece. It also part exited last year earning Rs 12.3 crore with 3.2x returns and will encash around Rs 24.5 crore during the IPO with almost 4x returns. It will continue to own an estimated 4.8% post issue.
ICICI Venture Capital’s India Advantage Fund II had invested around Rs 4.6 crore or about $1 million to buy a stake partly through purchase from promoters and converting warrants into equity in the company in 2004. It has part sold shares over the past five years to promoters, ICICI Bank, Dynamic India Fund I and India Infoline Venture Capital Fund gaining Rs 19.48 crore in the process. If the issue price is set at Rs 490 per share it would encash another Rs 17.6 crore translating into total Rs 37 crore or $8.2 million exit from its original $1 million investment.
ICICI Venture’s separate Dynamic India Fund I had picked shares in the company for around Rs 13.6 crore through secondary transfers from India Advantage Fund II and ICICI Bank at an average price of Rs 252 per share during 2007-08. It part exited by selling to Emerging India Focus Fund last year at Rs 400 per share earning Rs 4.24 crore and by full exiting in the IPO could encash a further Rs 21.5 crore, or selling out completely with 2x gross returns in less than four years.
Another entity under the ICICI banner Rainbow Fund had picked a small stake through transfer from ICICI Bank three years ago at Rs 261 per share and sold part of this to India Infoline Venture Capital Fund at Rs 400 a share and will generate a similar returns like Dynamic India Fund I.
ICICI Venture Capital’s another fund India Advantage Fund V had a much bigger exposure in the company having pumped in Rs 150 crore ($33.3 million) through a mix of share purchase from promoters, preferential allotment, rights issue, conversion of warrants into equity and transfer from India Advantage Fund VI. Its average cost of purchase works out to be Rs 240 per share. It sold some shares at Rs 400 per share last year encashing around Rs 40 crore. It is selling shares that could fetch it over Rs 139 crore if the issue price is around Rs 490 and it would still hold shares worth Rs 117 crore post issue.
ISSUE & COMPANY:
Arch Pharmalabs is looking to use Rs 135 crore raised through the fresh issue to repay/prepay term loan, capital expenditure for its existing manufacturing facilities, investment in environmental, health and safety related infrastructure besides investment in its R&D center.
The company has two business verticals: Products and Services. Its products business comprises manufacture and sale of Active Pharmaceutical Ingredients (API) and Intermediates to innovator and generic pharmaceutical companies in both domestic and international markets. In the services side it is engaged in Contract Research and Manufacturing Services (CRAMS).
It has a diversified product mix of APIs and Intermediates with more than 120 products (over 65 APIs and over 55 Intermediates) across various therapeutic segments. The therapeutic segments it caters to include side chains of Semi-Synthetic Isoxazole Penicillins under Antibiotics, Lipid Lowering Agents, Oncology, Anti-Asthmatic, Anti-Retroviral, Decongestant, Anti-Herpes, Anti-Malarial, among others.
It currently owns and operates 11 multipurpose manufacturing facilities in the western, southern and northern regions of India. Out of the 5 API manufacturing facilities, 3 facilities, (Gurgaon, Dombivali and Avon Solapur that is owned by its subsidiary Avon), are approved by USFDA.
For the year ended March 2010, the company had revenues of Rs 1,170 crore with net profit of Rs 62.6 crore. In the first half of current financial year, it had net profit of Rs 38.6 crore which works out to be around Rs 77 crore for the year ending March 31, 2011. If the issue price indeed works out to be Rs 490 per share, the company is seeking a valuation of around 17.5 times trailing earnings. This could appear a bit expensive compared to Jubilant Life Sciences which is much bigger in size but is trading at relatively modest valuations
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