Serum in stake sale talks at $12-bn valuation

Billionaire Cyrus Poonawalla is in talks with private equity firms and sovereign funds for selling as much as 10 per cent stake in Serum Institute of India, Asia's largest vaccine maker.

Serum is seeking a valuation of as much as Rs 80,000 crore ($12 billion), chief executive Adar Poonawalla has said. The company was in discussions with funds from Singapore and the US about the sale of a 5-10 per cent stake, he said in an interview.

Selling 10 per cent stake at that valuation would be the largest private equity (PE) investment in India, according to data compiled by Bloomberg. This year, PE transactions in the country have more than doubled to $11.2 billion from $4.6 billion in the corresponding period last year, the data show.

"This would be just capturing the crazy valuations right now that information technology companies and pharmaceutical companies are getting," Adar Poonawalla said.

"Looking at all this, we decided why not unlock some value if the valuations are good?"

Through the past five years, acquirers of Indian drugmakers have paid a median 35.6 times the earnings, compared with 21.9 times for such deals globally, according to the data compiled by Bloomberg. Listed Indian pharmaceutical and biotechnology firms trade at a median 31.6 times the earnings, against 22.7 times the earnings a year ago, the data show.

The incoming investor would get a board seat, according to Poonawalla. Serum could provide an exit for the investor in about seven years, either through a merger with a listed company or an initial public offering, he said.

The family's closely held Poonawalla Group will use the proceeds from the stake sale to fund philanthropic programmes. The group's activities include setting up a new hospital and education and sanitation work in Pune, according to Poonawalla.

Serum would decide on whether to sell stake in the next one or two months, Poonawalla said. "We're just waiting to hear from the funds on their conditions and their valuations and what they would expect," he said. "Then we'll go from there."

The vaccine maker is fully owned by the Poonawalla family. The Serum CEO's father, Cyrus Poonawalla, has a net worth of Rs 56,000 crore ($8.5 billion), according to the Bloomberg Billionaires Index. A Rs 80,000-crore valuation would value Serum at about 30 times its earnings, along with an additional Rs 20,000 crore for its product pipeline, the younger Poonawalla said.

Serum is open to acquiring smaller companies globally and would like to keep the size of any purchase at not more than $300 million as it doesn't want to take on too much debt, Poonawalla says. The company will focus its investments on vaccine technology, vaccine companies "and perhaps some vaccine start-ups", he added.

For 2014-15, Serum had sales of Rs 4,000 crore, and a net income of Rs 2,000 crore, Poonawalla said. It planned to triple revenue to Rs 12,000 crore in seven to eight years, he added.

The company also sought to start selling its main products in Europe in two years, through a partnership with Cipla, Poonawalla said.