The promoters of Hyderabad-headquartered listed pharma player Suven Life Sciences are exploring a potential sale of their demerged arm catering to the pure-play Contract Research And Manufacturing Services (CRAMS) segment, sources with the knowledge of the matter told Moneycontrol.
“Suven Pharmaceuticals is the demerged wholly-owned subsidiary of the company that has been put on the block and has applied to the bourses for permission to list. The promoters want to focus primarily on the discovery research undertaking involving molecules which is the business residing in the entity trading currently post the carve-out. Plus, globally, valuations in the CRAMS segment are favourable right now so the exit timing is appropriate,” said a source.
“Investment bank Barclays has been mandated for the sale process which is likely to be launched shortly. The deal is at a preliminary stage and is expected to attract strong interest from both private equity and strategic suitors,” added a second source.
The domestic CRAMS segment witnessed a transaction in July 2018 when US private equity firm TPG acquired a significant minority stake in Hyderabad based Sai Life Sciences. The financial terms of the transaction were not disclosed.
According to its 2019 annual report, Suven Life Sciences posted total revenues of around Rs 688 crores and a net profit of around Rs 150 crores. The CRAMS vertical comprises four segments, namely Base CRAMS ( which accounts for 45 percent of the total revenues), Commercial CRAMS, Specialty Chemicals, and Contract Technical Services.
The shares of Suven Life Sciences plunged by over 90 percent on January 21 as the stock traded ex-demerger of its contract research and manufacturing services (CRAMS) business.
In an interview to CNBC TV-18 dated 22nd January, 2019, Venkat Jasti, Chairman and CEO, Suven Life Sciences, said, “ When the separation takes place, the IP and the cash will come to the Suven Life Sciences, while all the assets and the revenue-generating business goes to the CRAMS side of the business. The profits after rewriting our expenses of Suven Life Sciences, the profit margins will go up by 25-30 percent. So, better profit margins and better shareholder value will be created — write-offs will not be there and R&D expenses will also be small.”
After January 21, the stock has surged by more than 70 percent in the last 15 trading sessions.
In February 2019, the demerger of the CRAMS undertaking of Suven Life Sciences Limited (Demerged Company) into Suven Pharmaceuticals Limited (Resulting Company) was announced.
“The demerger, transfer and vesting of CRAMS Undertaking on a going concern basis to the Resulting Company would result in better and efficient control and management for the segregated businesses and promote their growth,” the company said as part of the announcement. “The proposed demerger will enhance value for shareholders and allow a focused strategy in operation of the respective business verticals,” the company added.
A Barclays spokesperson declined to comment in response to a query from Moneycontrol while Moneycontrol is awaiting an email response from Suven Life Sciences and has sent multiple reminders.