The sale of the pharmaceutical division of Max India Ltd to Jubilant Organosys Ltd for Rs 69 crore as part of the former's efforts to restructure and concentrate in core areas has been dubbed a good deal for Max by some analysts.
The price has been a rather steep one for Jubilant, according to them as the bulk, normally treated as a commodity business, should not have been valued more than seven or eight times the annual profits.
Max India is always good in making money through deals, quipped an analyst. Max India's restructuring programme has resulted in divestment of the company's interests in business like Max Atotech, Max GB, and more recently, Avnet Max.
Max India had made it clear that it wants to focus on its large businesses of healthcare and life insurance. Says an analyst, "The bulk drug business is too competitive and hence Max wants to exit. But for Jubilant Organosys - a speciality chemical company, a forward integration is a good move. With outsourcing expected to be done by large pharma companies globally, Jubilant Organosys sees good potential for itself."
It must be noted that the acquisition comes close on the heels of Ranbaxy Laboratories Ltd's former R&D head Dr Jag Mohan Khanna taking over as the President of Jubilant Oganosys.
Max India has business interests in telecom services, electronic components, bulk pharmaceuticals and speciality products. Max Pharma is the bulk drug manufacturing business unit of Max. Max Pharma's production facility is located at Nanjangud, 25 kms from Mysore. One of the finest bulk drug manufacturing plants in India; it has to its credit the following: a production facility that is US FDA approved, ISO 9002 certification for quality management system and ISO 14000 for environmental management system, by KPMG and WHO's cGMP certification.
This facility is gearing up to receive audits from MCA (UK) and TGA (Australia). The product range includes: carbamazepine, azithromycin, oxcarbazepine, roxythromycin, tramadol hydrochloride, valsartan, citalopram hydrobromide, lamotrigine, pinaverium bromide, and risperidone.
Max Pharma also has a strong research arm, with several process patents to its credit. It has also successfully tapped highly regulated markets in developed countries.
Max's bulk drugs turnover for the financial year 2001-02 was Rs 66.74 crore and profit before tax was Rs 6.94 crore. Analysts say a profits multiple of ten as the sale price is actually quite high in deals concerning bulk facilities.
According to an investment banker, "The Indian market has not matured enough to be sensible in pricing deals. There is no consistency in pricing. Corporate pick up formulation brands for three to four times the sales multiple when it should not have been more than one and a half times the sales multiple."
Differs an analyst, "Frankly speaking, the one and a half times sales multiple for such buy-outs is not a sacrosanct ratio. It is more a measure of the payback potential of the asset as perceived by the buyer. Moreover, the buyer always sees as to what value he can add to unlock the potential, while the seller may not have the requisite skill set to implement."
Jubilant Organosys is the one of the largest speciality chemicals company in India and a leading manufacturer of acetyl products, pyridines and pyridines derivatives, fine chemicals, animal feed additives and a number of other chemicals. The company is one of the global leaders in pyridine and pyridine derivatives. The company has organized its operations into three distinct business units: Organic intermediates, specialty and fine chemicals; performance chemicals; and plant health and animal nutrition. Max India chairman Analjit Singh believes Jubilant Organosys, with APIs as one of its key focus areas, will optimize the bulk business's growth and enrich it further.