Hyderabad-based Aurobindo Pharma has reached a definitive agreement to sell its US subsidiary Natrol LLC to private equity firm New Mountain Capital and its affiliate Jarrow Formulas in an all-cash transaction valued at $550 mn (about Rs 4,048 crore). This would make Aurobindo a zero-debt company and also help it repay loans, analysts said.
The deal, subject to customary closing conditions and regulatory approvals, is expected to close by January.
Aurobindo said Natrol, which it acquired in December 2014, had been a “consistently profitable business” growing on all fronts. Natrol’s annual sales for the 12 months ended March 2020 were worth around $157 million.
Aurobindo’s stock reacted positively to the news, going up in morning trade but later settled flat at Rs 784.65 on the BSE. The Nifty Pharma index was down 1.6 per cent on Monday.
The US constitutes around 50 per cent of the company’s turnover, and Europe 22 per cent.
At the end of the first quarter of FY21, Aurobindo’s net debt stood at $168 million. In the June quarter, its revenue from the US business grew 15.6 per cent to Rs 3,107 crore, about 52.4 per cent of the consolidated revenue. In FY20, the company posted a robust growth rate of 18 per cent in its revenue from operations to Rs 23,098 crore, even as its US business grew 27 per cent.
“Aurobindo is committed to evaluating and concluding strategic options towards focused portfolio enhancement with the ultimate objective of enhancing stakeholder values. We are pleased to sell the Natrol business to an outstanding private equity player, who could focus additional resources to grow Natrol, its products and brands further,” said N Govindarajan, the firm’s managing director. He added that the proceeds from the sale of Natrol would be used to reduce debt and for other new strategic initiatives.
Brokerages said the deal was lucrative for Aurobindo. Surajit Pal, an analyst with Prabhudas Liladhar, told Business Standard that besides making Aurobindo a zero-debt company, this transaction would help it pay $100 million towards buying a minority stake in Eugia plant. Pal said the sale of Natrol was a good decision as it was an over-the-counter company (it sells nutraceuticals, etc) and did not go with the core business of Aurobindo.
According to ICICI Direct Research, at $550 million, the transaction values the business at 3.5x the sales, which is a compelling deal by any standards.
Earlier this year, Aurobindo had called off its plans to acquire Sandoz’s dermatology and oral solids generics portfolio in the US as the approval from the US Federal Trade Commission was not obtained within the anticipated timeline. Aurobindo was looking at acquiring Sandoz’s portfolio for $900 that would have catapulted it to the second-largest generics player in the US in terms of number of prescriptions.
Aurobindo had earlier acquired Actavis’ portfolio and Apotex’s European operations. It is now smartly trying to shift the production of the Apotex portfolio to India, which would reduce its costs and boost margins.