CX Partners cuts deal size with Natco Pharma, now investing $18M

Private equity firm CX Partners has revised its proposed deal with Hyderabad-based Natco Pharma, bringing its investment down by 30 per cent to Rs 108.5 crore ($18 million). The PE firm, through its arm CX Securities, was earlier looking to infuse Rs 153.22 crore ($25 million) for 7.11 per cent stake in the company.

Now CX Partners will be picking up 5.14 per cent stake, according to VCCircle estimates. Natco Pharma counts Kotak Private Equity and Sun Pharmaceutical promoter Dilip S Shanghvi as shareholders.

Natco Pharma will issue 1.7 million new shares (against earlier plan of 2.4 million) at Rs 638.4 to CX Securities, Mauritius. The deal would make CX Partners the largest non-promoter shareholder of the company. Cipher Capital was the advisor to Natco Pharma on the fundraise.

Natco Pharma was quoting at Rs 786, up 1.09 per cent on the BSE in the Mumbai market which was up by 0.58 per cent on Monday. CX Partners is likely to pick shares at a 19 per cent discount to the current market price.

While CX Partners has reduced its planned investment, the PE firm could increase its stake through market purchases when Natco Pharma's shares cool off.

Shares of Natco Pharma, which sells cancer drugs, have more than doubled this year; they a 52-week high of Rs 826 last month.

Total income of Natco Pharma was up 21.2 per cent to Rs 571.2 crore while net profit was up 26 per cent to Rs 78.1 crore in FY13 compared with the previous year. For Q2FY14, net profit rose 28.25 per cent to Rs 26.92 crore  while net sales declined marginally 3.69 per cent to Rs 162.91 crore.

Natco Pharma, formed in 1981, is involved in exports of both APIs and finished dosage forms. In March 2012, it was granted a compulsory licence for production of NEXAVAR, drug used for treating kidney and liver cancer.

Natco Pharma also recently won a court battle against Israeli drug maker Teva Pharmaceuticals, which could enable it to launch a generic version of the multiple sclerosis drug Copaxone in the US market in 2014.

"After a favourable Supreme Court verdict, USFDA approval now remains the last hurdle for the US launch. As discussed in our earlier updates, this can become a massive booster for the company. We expect Natco to clock around Rs 500 crore sales from Copaxone in FY15. This and other niche products (court proceedings for anti-cancer Revlimid slated to start soon) are expected to be the growth drivers along with the steady base business," said an ICICIdirect report on the company, with a price target of Rs 927.

(Edited by Joby Puthuparampil Johnson)

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