Strides Arcolab Ltd has entered into a definitive agreement for the sale of its specialities subsidiary to Nasdaq listed Mylan Inc for a total consideration of Rs 9,950 crore.
The company is selling — Agila Specialties Pvt Ltd and simultaneously its overseas specialities subsidiary, Agila Specialties Asia Pte Ltd, Singapore.
Under the terms of the agreement, Strides and its subsidiary will receive an aggregate sum of $1,600 million (Rs 8,610 crore) in cash on closing and a potential additional consideration of up to $250 million (Rs 1,345 crore) subject to the satisfaction of certain conditions by Strides.
The transaction has been independently approved by the respective board of directors of Strides and Mylan. The agreement to sell Agila Specialties Asia Pte Ltd has been independently approved by the respective board of directors of Agila Specialties Asia Pte Ltd and Mylan.
Following successful closing of the transaction, Strides proposes to utilise the proceeds towards, inter alia, retiring debt, providing a pre-tax return of approximately $700 million to $800 million to shareholders, and costs related to the satisfaction of contingent conditions.
The company has struck a positive note about the US market with the launch of new products and averred that its future growth would be driven by pharma and biotech businesses.
Stock hammered
However, the stock was hammered in the bourses today with investors resorting to large-scale selling since the specialities division accounts for over 50 per cent of the company’s sales.
But the sale has led to large-scale dumping of the stock. In fact, the stock has been steadily losing value in the past two months on the back of expected hiving off the specialities business, after touching a 52-week high of Rs 1,224 on December 5, 2012.
On the BSE, the stock was trading down at Rs 912.15, a loss of Rs 72.40 or 7.35 per cent with a trading volume of 5.64 lakh shares.
The market response could be because of the fact that the company is selling off a business that accounts for more than 50 per cent of its turnover and probably the valuation (the stock is trading at a PE multiple of 53) was partly built on this business.
With the sale of this division, the stock might try to align its value with the future business potential at least in the near term.
Strides said that in the wake of sale of Agila Specialties division, it would discontinue with its guidance for this business.
Pharma biz
But it expected the pharma business to continue to show “significant growth’’ for the company through the launch of new products in the US market and the EBITDA (for this business) was likely to double to Rs 200 crore in 2013 compared with Rs 103 crore in the previous year.
Income, EBITDA
During 2012 calendar year (the company follows Jan-Dec fiscal), the specialities division earned an income of Rs 1,365 crore compared with Rs 1,032 crore in 2011. The EBITDA was Rs 459 crore (Rs 261 crore) with the EBITDA margin of 34 per cent.
According to the audited consolidated results, the total revenue was up 31 per cent at Rs 2,291 crore (Rs 1,748 crore) and EBITDA increased 36 per cent to Rs 562 crore (Rs 413 crore).
In Q4, Strides Arcolab's revenue increased 40 per cent to Rs 648 crore on a consolidated basis compared with Rs 463 crore in the corresponding quarter in 2011. The EBITDA was up 72 per cent at Rs 143 crore (Rs 83 crore).
During the fourth quarter, the Agila Specialties division earned a total revenue of Rs 365 crore with EBITDA of Rs 115 crore.