Singapore Private Equity Backs Concord's Take Off Plans
Executive Summary
Niche therapy players, backed by strong technology platforms, continue to attract rich valuations in India, the latest being the Singapore-based private equity firm Quadria Capital's investment in Concord Biotech Ltd, an Indian manufacturer of fermentation based biopharmaceutical APIs [active pharmaceutical ingredients].
Quadria, through its Singapore based SPV, Helix Investments Pte Limited, has concluded an investment deal in Concord that is valued at about INR4.75bn ($70.5m) and expected to give the PE firm a 20% holding in the Ahmedabad-based company.
India's Foreign Investment Promotion Board had, earlier this year, cleared Helix's plans to subscribe to equity shares and purchase equity from the existing shareholders of Concord. The other investors in Helix are funds managed by Rising Tide and Neuberger Berman.
An industry source told Scrip that the founders and certain existing investors of Concord have pared their holding with the entry of Quadria, though leading domestic investor Rakesh Jhunjhunwala, seen as India's own Warren Buffet, continues to hold a significant stake in the firm even after the transaction. An official confirmation on this was not immediately available.
Quadria, one of Asia’s leading specialist healthcare focused PE groups, has been investing in some of the fastest growing economies in South Asia and South East Asia. Last year, Quadria invested in the Asian Institute of Gastroenterology, a leading gastric sciences hospital based in Hyderabad in India. (Also see "Warburg leads PE flow into Indian APIs with Laurus investment" - Scrip, 31 Oct, 2014.)
Niche Play, Strong Earnings
The source quoted previously also noted that Concord's "high value, low volume" business comes with a significant entry barrier that differentiates it from others and the company was now embarking on forward integration plans.
"The company has created a significant niche and does a high EBITDA [earnings before interest, taxes, depreciation and amortization]," the source maintained.
Other experts too underscored the firm's strong earnings trajectory.
Tarun Shah, founder of MP Advisors, an Indian strategic business advisory firm, said that Concord has created expertise in fermentation-based APIs which are complex to produce.
This probably explains the firm's strong EBITDA multiples which at around 48% are possibly the richest among Indian API companies, Shah told Scrip.
"Its current sales will see significant increase once Concord’s US FDA-standard formulation plant goes on stream. While the PE investor has paid 'top end' valuation, Concord is a company at inflection point," Mr Shah said.
Concord, which is focused on segments such as immunosuppressants, oncology, anti-fungals and anti-bacterials, is putting up a new formulations facility in Ahmedabad. The facility, which is expected to commence operations by the end of 2016, has been designed to supply solid and liquid orals both for regulated and semi-regulated markets, a statement from Quadria said.
Next Level
Backed by biotechnologist and technocrat-turned-entrepreneur Sudhir Vaid, Concord has change hands multiple times starting with Sanofi and DSM, till Vaid took charge of the firm and renamed it as Concord Biotech.
In 2005-06, Matrix Laboratories (which was later acquired by Mylan) took a controlling stake in Concord, but some years later the existing shareholders of Concord went on to buy back Mylan’s equity holding in the company.
Vaid said that Concord had grown to its current profile on the back of its strong technology platform and competence in developing and delivering high value complex molecules to global players in the regulated markets.
"We believe that now is the time to take the business to the next level by extending therapy expertise and introducing a new range of products," a statement quoting Vaid said.
Concord's current manufacturing facility in Ahmedabad is approved by several regulatory agencies including the US FDA, EU-GMP, Japanese AFM, Korean FDA, the statement added.
Concord is believed to supply several frontline firms including Teva Pharmaceutical Industries Ltd., Mylan and Lupin Ltd. , though this could not immediately be officially verified. The firm has commercial operations in over 50 countries with significant revenue contributions from products that are sold in the US, Europe and Japan. It is also undertakes contract research for multinational firms in the biotechnology space.