Glenmark Pharmaceuticals Limited (NSEI:GLENMARK) said that its board had approved the divestment of a 75% stake in its subsidiary Glenmark Life Sciences Limited (NSEI:GLS) to Nirma Limited at INR 615 a share, implying a valuation of INR 75.35 billion. The deal size is estimated to be INR 56.51 billion. Glenmark Pharma will continue to own a 7.84% stake in GLS, and pursuant to the transaction, Nirma will make a mandatory open offer to all public shareholders of GLS.

Glenmark Pharma holds 82.85% in GLS. The firm was required to bring it down to at least 75% by August 2024, within three years of listing. GLS, spun off from Glenmark Pharma in 2019 to focus on the active pharmaceutical ingredients (API) business, was listed on the bourses in 2021.

According to reports, other suitors like ChrysCapital and Sekhmet Pharmaventures chose to stay away from the deal due to differences over valuation. The stake sale to Nirma has been placed at a lower valuation than the current market value of the company, which stood at INR 76.83 billion as of September 21. ?The generic environment has changed, and become competitive over the years.

Glenmark has been focusing more on branded products. GLS was built to ensure Glenmark was vertically integrated as a generic drug maker,? Glenn Saldanha, chairman and managing director, Glenmark Pharma, told reporters.

He added that they would continue to focus on dermatology, respiratory, and oncology space. ?We draw 65% of our overall revenues from the branded business. The goal is to continue our presence in the branded space, both in India and other emerging markets as well as Europe,?

Saldanha said. ?The US generics business, which needs a vertical integration for cost benefits, we don?t want to play in that space much,? he said.

The move will help Glenmark Pharma in deleveraging its balance sheet. Glenmark will be net cash positive after the deal. ?The proceeds from this transaction will go into repaying debt.

The net debt of Glenmark is around INR 30.00 billion or so, and gross debt is around INR 46.00 billion. We will hold this cash in the balance sheet, and our goal is to be net cash positive for the next two years. The total debt gets extinguished after the deal,?

Saldanha said. Currently, Glenmark buys less than 15% of its APIs from GLS. As for GLS, it sells less than 35% of its APIs to Glenmark.

?Therefore, the synergies are less, and it made sense to sell a controlling stake in GLS. We will continue to procure APIs at the same price as earlier,? Saldanha said.

In April this year, the Nirma group, a detergent maker, acquired Stericon Pharma, an eye drop and contact lens maker, for around INR 3.50 billion. This acquisition will further strengthen its plans in the healthcare and pharmaceuticals space.