Granules India to exit from China joint venture

Granules India Ltd said on Monday it will divest its entire equity shareholding in its Chinese joint venture Granules Biocause Pharmaceuticals.

The latter is an equal joint venture between Granules India and Hubei Biocause Heilen Pharmaceutical with manufacturing facility at Jingmen in China. In 2007, Granules formed the joint venture to ensure a regular supply of Ibuprofen active pharma ingredient (API) to support its requirements for manufacturing pharma formulation intermediates and finished dosages.

The company said environmental issues have created an atmosphere of business uncertainty in China. To comply with regulatory issues on pollution, Granules Biocause Pharmaceuticals production facility had invested and will continue to invest substantial capital expenditure (capex), which is contrary to Granules India's strategy of reducing capex outflow and free cash flow generation.

"Granules believes the additional API supply will enable it to have more supply options and having a joint venture is not necessary to ensure Ibuprofen API continuity," it said in a statement adding that several existing manufacturers have expanded capacity or stated their intention to increase capacity.

Besides, many companies have announced their intention to enter the Ibuprofen API market. Granules said it has a supply agreement with the joint venture and Ibuprofen API supply will not be impacted as the existing agreement will continue. In addition, Granules has several other reliable approved suppliers of Ibuprofen API in the international and domestic market.

"Granules India's decision to dilute the stake of this joint venture will not impact its commitment of achieving the profitability target provided for the year even without any additional joint venture's contribution in the consolidated net profit. Further, sale proceeds from this transaction will enable Granules India's cash position and will eventually reduce the net debt position," it added.

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