Shares of Sanofi India Limited
fell 1% in the morning trade after its board has approved a transaction for the slump sale and transfer of the manufacturing facility of the company at Ankleshwar, Gujarat to Zentiva Private Limited for a consideration of Rs261.7cr, subject to customary working capital adjustments.
This transaction is subject to the approval of the members, which will be initiated by the Company through a postal ballot process and a few other conditions as defined under the Business Transfer Agreement.
In 2018, as part of a global transaction between Sanofi Group and Advent International, Advent acquired Zentiva, Sanofi Group's European generics business. Following this transaction, Zentiva continued to source products from the Company (through Sanofi group) for its generics business pursuant to a five-year supply agreement (ending in 2023). In view of this transaction, the commercial part of this business was divested by the Sanofi group to Advent, while the manufacturing assets continued to be in the Company.
Having received an offer from Zentiva to acquire its manufacturing facility in Ankleshwar, the Company agreed to explore this opportunity as it was in line with its' broader strategic direction. In particular, (i) it was an opportunity to address the excess and unutilized manufacturing capacity that would have remained at the end of the supply agreement, (ii) it supported the focus on manufacturing Sanofi branded products rather than manufacturing for third parties, and (iii) it would improve asset efficiency ratios.
The Board has also taken into consideration the valuation report issued by Deloitte Touche Tohmatsu India LLP and fairness opinion on such valuation issued by ICICI Securities Limited, the company said in the press note.
Given the above and considering that the two companies share similar values and commitment towards serving patients and their employees, the Board of Directors of Sanofi India Limited approved this transaction in the long-term interest of all stakeholders, it added.
After closing of the transaction and receipt of the consideration, the Board will consider the best utilization of the proceeds for business development including distribution to the shareholders in an appropriate manner.
The Ankleshwar manufacturing facility is engaged in the manufacture of Active Pharmaceutical Ingredients (API) and finished pharmaceutical products for distribution I sales across the world. In the financial year ended December 31, 2018, this facility contributed Rs873.5cr in the revenue (34% of the total revenue of the Company including Rs622.6cr of domestic sales that will not be impacted) and Rs294.5cr to the net worth (13% of the total net worth of the Company).
Apart from manufacturing products which are exported to Zentiva, it also makes products which are not part of the divestment. The products for the domestic market which are being manufactured at the Ankleshwar manufacturing facility will be moved to another manufacturing facility of the Company and will continue to be in the product portfolio of the Company, while most Zentiva export products that were manufactured at the Goa facility will be transferred to the Ankleshwar site.
The Company has made necessary arrangements to handle this transition in a secure manner to ensure that there is no business disruption in the supplies of products which have not been divested. Post this transition, the estimated average annual revenue loss to the Company over the next 4 years (balance of five-year supply agreement mentioned above) is about Rs470cr. The Company plans to mitigate the loss of profit in due course through a renewed focus on its core activities and brands.
Sanofi India Ltd is currently trading at Rs6,186.35, down by Rs77.45 or 1.24% from its previous closing of Rs6,263.80 on the BSE.