Strides' founder-led SeQuent Scientific to pick up stake in Shasun

Move follows JV for veterinary products

SeQuent Scientific, the Bangalore-based publicly held veterinary formulations company, is expected to pick up a stake worth up to Rs 150 crore in Chennai-based publicly held Shasun Pharmaceuticals. SeQuent will be making this investment in the equity capital or through convertible warrants. Shasun is engaged in the manufacture of APIs (Active Pharmaceutical Ingredients) and drug products, with presence in anti inflammatory and anti ulcerative therapeutic groups, and a strong offering in formulation. Shasun for the 9-month ending December 31, 2013, reported a net of close to Rs 20 crore on a topline of Rs 868 crore. Sensing the news of raising funds, the stock price of Shasun rose by 5.68% to close at 123.70 per share on BSE on Wednesday.

While the promoters of Shasun hold close to 42%, Arun Kumar, the co-promoter of SeQuent already holds around 1.5% in Shasun.  Arun Kumar is also the promoter of another publicly held pharma company - Strides Arcolab. During 2013, Arun Kumar scripted one of the biggest pharmaceutical deals in which he sold the speciality division of Strides to US-based Mylan for $1.6 billion.  According to investment bankers close to Arun Kumar, his next focus will be drive value in SeQuent while parallely working on building the bio-pharmaceutical business of Strides.

In addition to making the investment in Shasun, SeQuent will be also issuing two million warrants on preferential basis to the promoters, as part of its fund raise.  SeQuent is also parallely increasing its authorised capital to Rs 40 crore from the current Rs 32 crore by addition of 8 million equity shares.

This move by SeQuent to invest in Shasun Pharma comes hardly a week after a Bangalore-based private equity fund - Ascent Capital, committed an investment of Rs 120 crore in Alivira Animal Health, a joint venture between SeQuent and Shasun.

Alivira is involved in developing, manufacturing and the sale of veterinary products including both API (Active Pharmaceuticals Ingredients) and formulations in the global market. In the terms of the arrangement, SeQuent and Shasun  have made  contributions by way of transfer of identified assets, contracts and licenses. SeQuent owns 73% of the JVC and Shasun will own the remaining 27%.

For Ascent Capital, this is the second bet it is making on Arun Kumar. Ascent Capital had also last year invested in Skanray Technologies, a Mysore-based healthcare equipment company in which Arun Kumar is a key investor.

According to information available, the board of Alivira has submitted a three-year business plan to Ascent based on which the stake will be decided post that time-frame. “If this JV meets those targets, Ascent Capital will get a small stake, and if not, they get to hold a substantial stake,” senior investment bankers in the know told Business Standard.

SeQuent Scientific during the end of last year had planned to hive off its veterinary formulations business as part of its strategy to drive focus on that business. This business contributes around 40% to the revenues of Rs 350 crore. The company is jointly promoted by Arun Kumar and his close associate K R Ravishankar.

In addition to this business, SeQuent Scientific has a good presence in the human API which contributes another 40% to the revenues. Besides this, SeQuent had a presence in the speciality chemical business catering to the petrochemical business bringing in another 20% to the revenues, which was sold to a Korean company recently.