Krebs Bio zooms ahead of Ipca Labs open offer

Market players have however expressed doubts if the company would be able to buy the targeted quantity of shares from public

Mumbai-based Ipca Laboratories Limited, which intends to buy a majority stake in Hyderabad-based Krebs Biochemicals and Industries Limited (KBIL), will start its open offer on Wednesday to acquire the mandatory 26 per cent shares from the public shareholders of the target company.

With the existing share price of Krebs being far higher than the open offer price of Rs 54, market observers, however, expressed doubts on the company being able to buy the targeted quantity of shares from the public.

In February second week, Ipca had bought 1.8 million shares, or 18.92 per cent of the total paid-up equity share capital, of Krebs from its promoters. As a result, the promoters shareholding in the company has come down to 29.41 per cent from 48.33 per cent prior. Subsequently, the board of directors of Krebs also approved a proposal to allot 2.3 million shares on a preferential basis.

"Together with the shares accruing via the preferential allotment route, Ipca will have around 30 per cent shareholding in Krebs Bio and if the company is able to buy 10-15 per cent shares in the open offer that would be sufficient to take control of the company," a market analyst told Business Standard.

Interestingly, Ranbaxy Laboratories, which recently completed its merger with Sun Pharma, holds a little over 11 per cent stake (10,50,000 shares) in Krebs Bio.

Krebs Bio shares rose 8.12 per cent or Rs 9.29 apiece to close at Rs 123.10 on the Bombay Stock Exchange on Monday. On the same day, Ipca shares went up 1.58 per cent or Rs 10.40 to close at Rs 669.35 .

Apart from approving the preferential allotment of shares to Ipca Labs, the extraordinary general meeting (EGM) held on March 11, also approved a proposal of preferential allotment of 650,000 shares in addition to 680,000 convertible warrants to one of Krebs' promoters.

Ipca has an existing relationship with Krebs, which has been into losses for the past couple of years, as its two manufacturing facilities are being used by the former. Krebs biofermentation facilities along with its biopharmaceutical products, including Ephedrines, would help Ipca enter an all-new segment if it gets the management control.

Set up in 1991, Krebs Bio has expertise in chemical synthesis, fermentation and enzymatic technologies besides owning two US FDA facilities in Visakhapatnam and Nellore districts.

At its board meeting on February 13, Ipca approved a proposal to subscribe to 2.3 million shares of Krebs Bio of face value of Rs 10 each at Rs 54 besides making an open offer to the public shareholders to buy 3.57 million shares representing 26 per cent of the fully diluted equity post preferential offer and conversion of warrants.

Ipca Labs posted a net profit of Rs 41.53 crore for the quarter ended December 31, 2014 as compared with Rs 139.12 crore million in the corresponding quarter previous year. The company claims to have over 350 formulations and 80 active pharmaceutical ingredients (APIs) under its product portfolio.