Does Nirma want to be a pharma company?
Nirma Limited has acquired a substantial 75% stake in Glenmark Life Sciences (GLS) for approximately Rs 7,500 crore. This significant acquisition signifies Nirma’s entrance into the Active Pharmaceutical Ingredient (API) sector, expanding its pharmaceutical portfolio. Glenmark Pharmaceuticals, in turn, has sold this stake to alleviate its outstanding debt, amounting to Rs 4,340 crore as of FY23.
The deal values GLS at around Rs 6,700 crore. Nirma’s investment in Glenmark is projected to yield a promising 7-year Return on Invested Capital (ROIC) of 14%, assuming steady earnings growth similar to historical trends.
Post-acquisition, Glenmark Pharma will retain a 7.84% stake in GLS, and its promoter group members will transition into public shareholders. In addition to the stake sale, the two companies have extended their business partnership for five years, with Glenmark Pharma committed to procuring APIs from GLS starting in April 2024.
Glenmark Pharma’s chairman, Glenn Saldanha, highlighted the strategic benefits of the transaction, emphasizing debt reduction and improved return ratios. While concerns exist about the impact on Glenmark Pharma’s revenue and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) in FY25, the divestment is expected to expedite financial objectives. However, some analysts predict potential earnings dilution in FY25 due to the deal.
In summary, Nirma’s acquisition of a majority stake in Glenmark Life Sciences not only marks its entry into the pharmaceutical sector but also aids Glenmark Pharmaceuticals in its pursuit of debt reduction and strategic focus on growth and innovation.
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