“They gave us a tough fight.”
Pithy words from a senior executive at a European drug maker with a portfolio of women’s health products sums up the point. His reference is to BSV, formerly Bharat Serums and Vaccines, which for a large part of its four decades of existence, quietly grew selling specialised drugs, mostly in the gynaecology segment. That quietness was shaken six months ago, replaced by loud headlines.
Controlled by US-based private-equity (PE) firm Advent International, BSV is an acquisition target of global PE players and big Indian drug makers. A deal to buy BSV is seen at a staggering value of USD1.5 billion to USD2 billion. Among the big names in the reckoning are, a consortium of PE firms like Warburg Pincus, ChrysCapital, Blackstone, and strategic bidders like Mankind Pharma and Dr. Reddy’s Labs.
For PE giants, India’s fast-growing healthcare market is fertile, while for strategic players like Mankind Pharma and Dr. Reddy’s, BSV adds an ideal mix of research-based products to their portfolio.
“Mankind has a minuscule portion of its revenues from exports and there BSV fits in well. As for Dr. Reddy’s, it aligns well with their focus on drugs that have high entry barriers,” says an analyst.
“As compared to branded generic drugs, BSV’s products come with quality revenues and long-term assurance of less competition. Even with 40% of its products under government price controls, there is a lot in the portfolio,” an industry expert says.
Advent took control of BSV between 2019 and 2020 for a deal valued upwards of USD545.49 million or INR3,924 crore (USD1 = INR71.94 at that time), shows data from market intelligence provider EMIS. The deal put the company’s enterprise value roughly at over 4.5x its FY19 consolidated sales of INR878 crore. The ownership had moved to Advent from the Daftary family (the founders), Orbimed PE, and Kotak Private Equity that were long-term investors.
Going by industry grapevine, effectively BSV’s valuation has vaulted three times in less than five years, adjusting for rupee devaluation.
Data from Tofler shows BSV reported operating income of INR1,435 crore in FY23 and a profit of INR47.7 crore. Between FY20 and FY23, the company’s revenues grew by 111% and PAT rose by 37% CAGR. Take out the two years of Covid-19 (2020 and 2021) pandemic that dealt a crippling blow to most companies and BSV’s turnaround becomes even more remarkable.
Sources in investment banking circles say BSV is expected to report a top line of INR1,700 crore in FY24. If Advent is looking to offload its entire stake in the business for USD1.5 billion to USD 2 billion or INR12,540 crore to INR16,720 crore (USD1 = INR83.6 current value), that could value the company between 7.4x to 9.8x (in rupee terms) its FY24 sales.
At the higher end, valuations for BSV are in line with recent deals like PE-led buyout of Healthium, the surgical and medical technology company. Reproductive clinic chain Indira IVF and PE investor TA Associates recently sold 63% stake to Swedish PE firm BPEA EQT for a valuation of USD1.1 billion or 7.4x its FY23 sales.
That would mean Advent may walk out of BSV with a cool return of 3x-4x of its invested amount in five years. Arguably, it had a big role in building that positive change.
Advent’s entry into BSV came through a circuitous chain of deals. In February 2020, it acquired a majority stake in BSV, through a stepdown subsidiary named Aksipro Diagnostics (ADPL). In FY22, BSV was merged with ADPL, and the company was renamed as BSVL. To run the operations, Advent picked a professional team led by managing director and CEO, Sanjiv Navangul.
Humble to high-end
A quick note before we move into the details — BSV has no presence in vaccines.
But what started by Vinod Daftary as a humble blood bank in 1971 morphed into an exceptional company under his son Bharat Daftary, who passed away late last year. BSV carved a niche in infertility treatment, assisted reproductive technology, critical care, and emergency medicines.
For example, the segment for women’s health products is a space as crowded as any other high-growth area like anti-diabetes drugs in India. The broad contours of women’s health drugs include multivitamins, medicines for bone and muscle strength or multiple nutritional supplements, and those that relate to gynaecology.
BSV works at the high-end of that spectrum, essentially in areas that have less players. The company’s drugs are not just difficult to make, but also rely for quality on a stringent supply chain and distribution system.
Sample this: One of its indigenously researched injectable drug is Anti-D, an immunoglobulin (in simple words an antibody that fights against a bacteria, virus, or fungi) that protects women from risky pregnancies. Launched just two years ago, its sales are inching close to INR100 crore now.
Another one showing promise is Humog HP prescribed in infertility cases. Latest data sourced from pharma market intelligence firm Pharmarack shows sales of Humog at close to INR83 crore, growing at nearly 50% CAGR over the last five years.
According to a Mumbai-based infertility care specialist, BSV’s strength lies in bringing innovative drugs to the market. “It competes mainly with big names like Merck Serono, Organon (MSD), Ferring and Sanofi and I hear they have a strong research pipeline,” he adds.
Shooting higher
Sheetal Sapale, VP (commercial), Pharmarack, says majority of the big brands of Bharat Serums with turnover over INR50 crore have shown an encouraging five-year value growth. Sapale, who has a strong grip on analysing market trends, says almost half of BSV’s total revenues is generated from gynaecology products. That segment has grown at around 9.5% for BSV over the last five years.
What keeps BSV away from the spotlight? First, it is placed at #Rank 33 by sales value in the Indian market, according to Pharmarack. It has fewer products, unlike the mass presence of bigger peers like Sun Pharma or Cipla. Also, not being listed on the stock exchanges (without any public shareholding), it needs no mandatory financial reporting or interactions to be made public through media or to market investors.
A bold turnaround
Industry experts, however, say the picture for BSV was turning dismal before Advent had stepped in. According to a Crisil note of 2020, BSV’s sales slowed to INR898 crore in 2020 from INR883 crore in 2019. For the same period, its profit after tax had halved to INR51 crore in 2020 from INR103 crore in the previous year.
But since, the company’s scale of operations has improved. However, it has led to an increase in working-capital requirement. “The receivables cycle is around two months, and inventory of around three months is maintained due to lead time on imports and the production process,” Crisil said in its latest note.
On the brighter side, the business has consolidated gross margins of over 60%, shows FY23 financial data from Tofler. But net margins for the same year are around 3.3%, largely due to a rise in interest cost payment, mostly on account of the incremental compulsory convertible debentures and term debt taken to fund the acquisition TTK Pharma division in FY23.
But the company’s debt-to-equity ratio is still below 1x, and its interest coverage ratio is 1.5x. The biggest edge for BSV is that its growth engine is firing.
Experts say BSV’s latest annual revenue from the Indian market was around INR1,100 crore while it has seen a big bounce from exports, where revenues may be more than INR600 crore.
Unlike the generic industry that sells drugs through distribution network, BSV is deploying its own marketing experts in key overseas markets.
So, what led to that change?
As a standard rule, private equity-driven organisations go for a leadership change and that is seen among the biggest reasons for BSV’s turnaround.
Sanjiv Navangul, a hardcore professional with decades of experience in multinational companies, is at the centre of the revamp.
Before taking over the reins, he headed the Indian pharma operations of US giant Johnson & Johnson. A popular figure in the industry and known for his strategic marketing skills, Navangul is credited with successes of many leading brands. Besides, he helped establish a strong presence for US-based Merck in India. Navangul also led hardball negotiations with Indian government for facilitating access to J&J’s novel breakthrough anti-TB treatment bedaquiline.
But for him, there were unexpected headwinds in store that the world had not seen coming. Navangul’s start at BSV coincided with the pandemic. He had less time for drastic decisions but what he did in the adverse conditions, formed the stepping stone to ensure growth for BSV’s jewel brands.
Navangul focused on a few power brands and took the unpopular decision to jettison a bunch of tail-end products. “When sales were falling, it was audacious to let go drugs that totalled over INR100 crore,” says an industry expert.
Navangul was clearly trying at BSV what he learned from his years of experience at MNCs. The idea was to streamline to get the maximum returns from big brands. That seems to have resonated with doctors. An industry source requesting not to be identified said under Navangul, BSV took compliance standards strictly that were at par with global companies.
“Partnering with medical associations in women’s health is purely for scientific papers and data, unlike many others who are still focused on doctors to get prescription volumes,” he adds.
With Advent’s financial muscle, in 2022, Navangul acquired the women’s health portfolio of TTK Healthcare for roughly INR800 crore. That deal expanded BSV’s reach and gave a broader offering to gynaecologists.
Another key change was hiring a crop of new talent. Navangul brought in a rich pedigree of professionals. To name a few, Swashraya Shah, who held senior positions at MSD and AstraZeneca moved to BSV as a medical director. His expertise in understanding of the regulatory side and selection of drugs is at a core of BSV’s new launches. Then, Jaby Jacob, a post-doc from Chicago University moved in to lead BSV’s R&D after working at US-based Amgen and Dr. Reddy’s Labs in India.
One of the areas being watched closely is BSV’s partnership with the Indian Institute of Science for research on snake venom diversity that was struck in 2022. With BSV’s expertise in developing new therapies, the aim is to develop snakebite therapies that work across regions, since venoms differ widely within the Indian geography.
Clearly, whoever wins control of BSV will have a long runway to grow and perhaps that’s what is keeping the Deal Street buzzing.
( Originally published on Jun 18, 2024, 04:00 A.M. IST )
Source : ET
