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Carlyle-backed animal health company SeQuent Scientific and Viyash Life Sciences have announced a Rs 8,000 crore merger to create a platform that will be one of the largest in the animal pharmaceuticals space in India.
Analysts feel that the combined entity will be better placed to tap the global markets for animal pharmaceuticals. In 2023, the global animal pharma market was valued at $38 billion and is projected to grow at around 8 per cent, touching $51 billion by 2027. The Indian animal health market, on the other hand, is valued at Rs 8,000 crore in 2023 and is expected to touch Rs 16,000 crore by 2032.
The combined entity will have access to global markets (over 150 countries) with strong R&D, intellectual property, and product development capabilities, and 16 state-of-the-art manufacturing facilities. The combined entity will also have a more robust financial profile. Further, the entity will have a five-times higher R&D talent pool and nine-times more USFDA-approved manufacturing facilities. Thus, operational benefits will start to show.
For example, Viyash already supplies intermediates for one key active pharmaceutical ingredient (API) that SeQuent makes for the US market. Leveraging each other’s global customer base, technical skills, as well as backward integration and procurement synergies, would aid growth, industry insiders felt.
In June, Bhavesh Gandhi of Yes Securities noted that SeQuent is upbeat on its API business, and in the formulations business too, the company is expecting growth after a period of macro-factor-led disruption. The domestic business (which was impacted by the stoppage of Zoetis product distribution) is also expected to do better.
The Carlyle Group portfolio companies have announced the swap ratio for the merger—Viyash shareholders to get 56 equity shares of SeQuent for every 100 Viyash equity shares. The new shares of SeQuent so issued will be traded on the NSE and BSE. This will result in the capital base of SeQuent expanding from the present 240 million shares to 428 million shares. The promoter and promoter group’s shareholding will be around 62.4 per cent in the combined entity.
Based on Thursday’s closing price (the scheme of arrangement was announced after market hours on Thursday), the value of the combined entity with the expansion in its capital base will be around Rs 8,167 crore. Shares of SeQuent were up 14 per cent on BSE, ending the day’s trade at Rs 217.35 apiece. The valuation of the company thus increased to Rs 9,323 crore on Friday.
The proposed merger is expected to create a “unique and differentiated platform with a leading market position in animal healthcare and integrated capabilities for global pharmaceutical clients, supported by a strong operating backbone,” it said in a press statement.
SeQuent makes active pharmaceutical ingredients (APIs), finished dosage formulations, and analytical services for the animal health industry, spanning across Europe, Turkey, Brazil, and India. It ranks among the top 25 animal health enterprises globally. Viyash has 10 manufacturing plants, including one in New Jersey, US. It is a manufacturer of APIs and formulations for drugs in the human health segment.
Post this merger, the combined entity would become one of the largest animal healthcare companies in India, a company spokesperson said. Some of the key players in this space include Indian Immunologicals (which makes animal vaccines), Hester Biosciences, Virbac Animal Health, Zoetis India, etc.
A senior analyst who tracks SeQuent told Business Standard that the merger would not have any impact on the dynamics of the Indian animal health industry, as Viyash is into human APIs.
In FY24, SeQuent reported a revenue of Rs 1,369 crore, marginally down from Rs 1,420 crore in FY23. It reported a net loss of Rs 29.6 crore compared to Rs 122 crore in FY23, as its Ebitda increased by 41 per cent year-on-year to Rs 106.8 crore. It reported gross margins of 44.5 per cent in FY24.
The formulations business witnessed a marginal decline in revenue during the fiscal. In a subdued global market, its API revenues in FY24 stood at Rs 326 crore, compared to Rs 380 crore in FY23.
SeQuent’s business is bifurcated into two segments—healthcare products for production animals and those for companion animals.
In recent years, the global market for production animal medications has encountered challenges stemming from escalating feed costs, driven upward by water scarcity and agricultural productivity constraints. These factors had impacted the demand for such medicines.
Analysts expect improvement in the markets where the company operates.
“We are thrilled to announce a transformative step in our journey towards creating a unique, differentiated global leader in animal health with integrated capabilities,” said SeQuent’s chief executive officer, Rajaram Narayanan.
Narayanan added, “We believe that in order to continue to deliver differentiated value to our customers in times to come, it is imperative to scale up our product development and R&D capabilities to capture the market opportunity we are seeing and to build on our leadership in the animal health market.”
Viyash’s founder and chief executive officer Haribabu Bodepudi, who was formerly the chief operating officer of global drug major Mylan (now known as Viatris), said, “With our combined resources, R&D capabilities, manufacturing capacities, and streamlined supply chain, we are well-positioned to accelerate growth and offer a wider range of high-quality products to our customers.”
First Published: Sep 27 2024 | 7:27 PM IST
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