Lupin CFO Says $1 Billion M&A War Chest May Be Just The Start

  • Firm relying on cash and debt for a series of smaller buyouts
  • Controlling family open to equity dilution for bigger deals

Lupin Ltd.’s point man for mergers and acquisitions figures he has about $1 billion to work with as he hunts for targets to hasten the Indian firm’s move from simple generic drugs to more profitable products. But that could be just the beginning.

Ramesh Swaminathan, chief financial officer at India’s second-largest drugmaker by market value, said cash and debt could fund multiple deals around the firm’s "sweet spot" between $200 million and $300 million, going up to $1 billion. He said Lupin’s controlling family, the Guptas, may also be open to diluting their own equity stake to fund even bigger transactions should something worthwhile come along.

Indian drugmakers are increasingly looking to acquisitions to shift away from generics, where profit margins are falling, to more specialized medicines that command higher prices. Lupin has become India’s second-most acquisitive pharmaceutical company in the last three years largely due to the $880 million buyout of New Jersey-based Gavis Pharmaceuticals LLC in 2015. That deal gave it access to niche products in dermatology and controlled substances, and Swaminathan says there’s scope to do more of the same.

"There’s still room to buy more assets," he said during an interview at Lupin’s headquarters in Mumbai. "We are a company that’s still controlled by the family, which has a 47 percent stake in this company. There’s no compelling reason for them to dilute -- though of course it always remains an option for the absolutely transformative asset."

Lupin’s share price has almost tripled over the past five years, although the stock has declined over the last twelve months to trade near 1,457 rupees. The stock fell as much as 2.5 percent today in Mumbai trading before trimming those losses to a 1.2 percent drop at 2.47 p.m. in Mumbai.

As of September, the company had about $152 million in cash, and in its most recent earnings conference call said it had about $810 million in debt.

Lupin reported rises in both profit and sales in its third-quarter results last month, aided by a more than 53 percent increase in U.S. sales.

Swaminathan said that leaves Lupin well placed to be flexible in its acquisitions strategy depending on what assets become available. He also said prices for the kinds of specialty pharmaceutical assets Lupin is interested in are lower now than they were two years ago when bidding from private-equity firms, Western drugmakers and newer Indian and Chinese ones drove up prices.

"Everyone’s got a lot more circumspect about the value that they will pay as opposed to about two years ago," he said. "For now I think the assets are correctly priced."

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