Parikh family, former promoters of Zandu, exits pharma business

Sells stake in drug firm ZCL to PE firm Advent for Rs 1,600 cr

After selling its stake in Zandu Pharmaceuticals in 2008 to Kolkata-based Emami, the Parikh family, the erstwhile promoters of Zandu, is exiting the pharma space with the sale of its 80 per cent in bulk drug firm ZCL Chemicals for Rs 1,600 crore.
 
Private equity player Advent International is buying ZCL for Rs 2,000 crore.
 
Morgan Stanley, which holds a little over 19 per cent in the firm, is making Rs 390 crore from this deal.
 
According to industry sources, ZCL had a turnover of Rs 261 crore in FY20 and in FY21 it would be over Rs 300 crore.
 
Sources say the deal is valued at 25 times the FY20 Ebitda (earnings before interest, taxation, depreciation, and amortisation) and 14.2 times the FY21 Ebitda estimate.
 
“We had to give Morgan Stanley an exit, so we launched a process with our banker Jefferies. We realised that there is a lot of interest in the firm from the investor community,” said Nihar Parikh, executive director, ZCL. Private markets are valuing enterprises at par with public markets, he added.
 
“The only reason we would go public would be for valuation. We evaluated, and the delta was not substantial. So we decided to go for an outright sale,” Parikh said.
 
ZCL, formerly known as Zandu Chemicals, was bought back from Emami by Ajay Parikh for Rs 12.5 crore and handed over to his son Nihar.

 
Nihar, a 22-year-old chemical engineer working in Belgium, returned to India and took charge of the loss-making entity, which had a turnover of about Rs 30-odd crore. The 2008 Emami bid was a hostile takeover after the Vaidyas, Parikh’s co-promoters, had sold their stake. The Parikhs, who wanted to prevent the takeover, had finally relented and sold their 40 per cent stake for Rs 400 crore.
 
Nihar said: “My 55-year-old father called me up in Belgium and asked me what I had in mind for my future. He said they could buy out Zandu Chemicals and give it to me to run, given my background in chemical engineering. I came back and initially had a culture shock when I started to run the family-run enterprise.”
 
Nihar restructured the firm, hired professionals from leading pharma giants in India including Sun Pharma, Zydus, and Lupin, and decided to focus on the bottom line.
 
“We got into making high-end active pharmaceutical ingredients (APIs) and got our plant at Ankleshwar approved by the US Food and Drug Administration. We also realised it was tough to fight pharma giants in India for share in the domestic market. So we turned our attention to exporting to regulated markets,” Parikh explains.
 
From one plant in 2008, ZCL has four plants and 90 per cent of its revenues come from exports. The growth has been funded primarily through internal accruals and debt. In 2016 ZCL raised a round of private equity where Morgan Stanley PE Asia invested Rs 150 crore for a 19 per cent stake, which valued ZCL at Rs 750 crore. Now, ZCL is valued at Rs 2,000 crore.
 
Morgan Stanley has made 2.6 times its initial investment.
 
From a Rs 12.5 crore valuation in 2008 in 13 years, it has grown by 160 times.
 
So, what next for the second generation of the Parikh family?
 
Nihar does not wish to divulge details, but he says the nutraceuticals space excites him. “Pharmaceuticals is a space we have known and worked in. So I do not rule out carving out something in this space altogether.”
 
The next venture may begin through an acquisition and is likely to be a business-to-consumer model rather than ZCL’s business-to-business model.