Stake sale to lower debt and boost sentiment for Bafna Pharma

The stock price shot up by 19% intra-day on Tuesday, before closing flat at Rs 30.20 on Tuesday

Bafna Pharma drew strong investor interest with the news of Mylan and two other Indian companies showing interest to acquire the Chennai-based company. The stock price shot up by 19 per cent intra-day on Tuesday, before closing flat at Rs 30.20 on Tuesday.

Though it has given up some gains on Wednesday and is trading at Rs 28.6, these levels are still 12.4 per cent higher than the share price on November 19, a day prior to the company’s launch of Raricap injection. The company, which has presence in women wellness and childcare segments in the domestic market through Raricap branded products, on Monday expanded its pain management and anti-infectives segment by launching new products, namely, Afenac, Nocaf, Izabof.

While the stake sale news was positive for the investors, the news that Bafna may be demanding steep valuations may have disturbed the upbeat mood.

Also, later the company stated in a note to the stock exchanges, “The news reports appearing in a section of media regarding Bafna Pharma are speculative. The company has a policy of desisting to comment on any speculation.” It added, “Yet in the larger interest of stakeholders and others concerned, we wish to inform you that the company has been looking for raising money from various modes. In the normal course of business some negotiations are taking place which are at primitive stage.”

Meanwhile, the interest shown by Mylan is understandable looking at its aggressiveness on the Indian markets. The US-based company having headquarters in Pennsylvania has already acquired Hyderabad-based Matrix laboratories, Visakhapatnam-based antibiotic manufacturing unit from SMS Pharma, Uncichem’s Indore SEZ plant and is also trying to close the $1.6-billion buyout of Agila, the injectibles medicine subsidiary of Strides Arcolab.

Hitesh Mahida at Fortune Equity Brokers says Mylan is trying to make India as its manufacturing hub. Arvind Bothra at Religare Capital markets also says that it is strategic decision of Mylan.

Bafna Pharma, having US, UK and Australian regulator-approved manufacturing units, makes an attractive bet for any suitor or investor wanting to pick a stake in the company. In addition, Bafna’s Raricap brand has annual sales worth Rs 15-20 crore. The Raricap products are for iron deficiency in patients, while other products pertaining to multivitamins, pain relief and anti-infective formulations.

The company, however, has been under stress due to increasing debt. As of March, the Rs 56-crore market cap company had total debt of Rs 91 crore, cash and bank balances of Rs 21 crore and investments of Rs 1.4 crore. The high debt has been dragging the company’s profitability. Bafna that clocked in Rs 47 crore in net sales during September quarter had operating profits of 6.19 crore. However, interest costs stood at Rs 3 crore, almost half of the operating profits. With depreciation at Rs 1.43 crore, the net profit stood at just Rs 1.19 crore.

In the month of March, CRISIL had revised its rating outlook on the long-term bank facilities of Bafna from stable to negative. Thus, it is not surprising that the Bafna management may look at partly/fully divesting stake to raise funds for the company.