A clutch of domestic strategic suitors and global private equity funds are in the race to acquire select business divisions of pharma major Wockhardt, sources with knowledge of the matter told Moneycontrol. These divisions have been put on the block to reduce the firm’s debt burden.
"Cipla, Dr Reddy’s, private equity fund Carlyle and Hong Kong-based investment fund PAG are among the suitors in the race for these select business portfolios," said a source.
"Wockhardt is expecting a valuation between Rs 2,400-Rs 2,700 crores as the combined valuation for the proposed sale of these segments. The company has attempted various routes in the past to raise funds and this is a fresh construct involving the sale of controlling stake and has attracted considerable interest. Sizeable domestic businesses have always attracted attention from both strategic as well as buyout funds on account of stable growth and lesser regulatory risks,” the source said.
The company had a total debt of Rs 3,367 crore as on March 31, 2019, and its current market capitalisation stands at Rs 3,022 crores. It has a diversified product portfolio with presence in therapeutic segments such as cardiology, dermatology, diabetes, respiratory and ophthalmology. Moneycontrol could not independently verify which of the segments have been identified for divestment.
“Due diligence is being carried out by the suitors and the submission of bids is expected in the final week of November,” added another source.
Investment bank Moelis is advising Wockhardt on the sale process.
In August 2019, a report by India Ratings highlighted, “the significantly elevated refinancing risks for Wockhardt in the second half of FY20 due to its weak liquidity position for servicing its upcoming debt maturities over the same period."
Excerpts from the India Ratings' report:
"In the absence of a meaningful recovery in operating performance, the company has witnessed continuous depletion in cash balances for servicing debt obligations. Furthermore, the agency expects a weak free cash flow generation in FY20."
In FY19, the company’s promoters had infused Rs 2.5 billion (Rs 250 crores) in the form of redeemable preference shares to refinance Wockhardt’s outstanding preference debt. The management is evaluating refinancing options for the large upcoming debt repayments (2QFY20-4QFY20: Rs 490 crores; FY21: Rs 841 crores) through term loans and other capital infusion options in India and abroad.
Also, additional financial support from the promoters through the issuance of redeemable preference shares of Rs 2.5 billion (Rs 250 crores) as per a board resolution in December 2018 and proposed debt issuances may provide liquidity back-up till 2HFY20. Based on a discussion with the management, the agency expects the shortfalls in debt servicing, if any, to be met by the promoters through fund infusions. Hence, a meaningful operational turnaround in FY20 and/or continued promoter support is a key rating sensitive factor.
The company reported a consolidated net loss of Rs 94.24 crore in Q2 FY20 compared to a net loss of Rs 30.84 crore in Q2 FY19. H1FY20 EBITDA showed an improvement from Rs 81 crore to Rs 99 crore over the previous year. India business stood at Rs 227 crore in Q2FY20 as compared to Rs 455 crore in Q2FY19. The de-growth was mainly on account of lower sales in quality generics division and in some of the therapeutic areas. India business contributed 28 percent of the global revenues. Net sales for the period under review dropped 28.7 percent to Rs 802.18 crore.
In response to a query from Moneycontrol, Dr Reddy’s, Carlyle and PAG declined to comment while Cipla and Moelis were unavailable for an immediate response. Moneycontrol is awaiting responses to an email query and multiple texts and calls sent/made to Wockhardt Chairman Habil Khorakiwala and will update this article as soon as it hears from the company.