Strides Arcolab's sale of its subsidiary Ascent Pharmahealth to Watson Pharmaceuticals will take care of its Foreign Currency Convertible Debenture (FCCB) payments and help it bring down the debt on its books.

The deal, pegged at about AU$ 375 million (about Rs 1979 crore), valued the Australian company at about 4.5 times its 2010 sales (of about Rs 444.2 crore).

Growing business

The 94 per cent Australian subsidiary which has operations in Australia and South-East Asia, contributed about 26 per cent of Strides' total revenue pie in 2010, growing by about 56 per cent over the year. The company's financial year is from January to December. The business was expected to generate revenues of about $150 million (about Rs 750 crore) in 2011.

While this would peg the deal valuations down to about 2.6 times the estimated 2011 sales, this too is attractive.

Ascent markets a broad portfolio of generics, brands, branded generics and over-the-counter products in Australia, and enjoys about a 14 per cent market share. It employs over 300 employees in Australia and South-East Asia. Besides, the scarcity of acquisition candidates in the $12-billion Australian pharmaceutical market too would have worked in Strides' favour.

Incidentally, only in May 2008 Strides had picked up 50.1 per cent stake in Ascent Pharmahealth, erstwhile Genepharm Australasia. It subsequently raised holding to 57 per cent, and in 2010 upped its stake to 94 per cent, subsequently delisting the company. The remaining six per cent stake was with the CEO of Ascent Pharmahealth.

Debt to come down

Given that the transaction has been signed and closed simultaneously (in an all-cash deal), it would provide an immediate reprieve to the burgeoning debt burden of the company. As of September 2011, the company had a debt of about Rs 1,367 crore (up from Rs 1,280 crore as of end 2010).

Its debt-equity ratio stood at about 1.93 (end of September 2011).

The sale proceeds therefore would take care of FCCB repayments (of about $120 million) this June also. The company expects to retire about $250 million of debt (including FCCB) and bring its debt-equity ratio to about 0.75 levels.

In line with strategy

The decision to sell Ascent will allow Strides to focus on its more profitable injectable-drugs business. The current year is expected to be a promising one for the business given the shortage of capacity in the industry. Seven of its eight manufacturing capacities have been approved by the US FDA.

The stock closed 17 per cent higher at Rs 478.3.

> Srividhya.sivakumar@thehindu.co.in

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