Arch on a buying spree

Mumbai-based Arch Pharmalabs has announced the acquisition of Hyderabad-based Watsol Organics, a manufacturer of pharmaceuticals and agro-chemical intermediaries, for an enterprise value of Rs 30 crore. The acquisition is completely funded through internal accruals. Only this April, Arch Pharmalabs had acquired Sibra Pharmaceuticals, another Hyderabad-based SME, for about Rs 40 crore. Incidentally, this is the third acquisition by the company in Hyderabad, of which two were acquired this year alone. The company has chalked out plans of investing Rs 120 crore for expanding the capacities of its existing and newly acquired bulk drug and intermediaries manufacturing facilities. The three facilities put together in Hyderabad is expected to contribute around Rs 500 crore by the end of the financial year 2010.

Ajit Kamath, Chairman and Managing Director, Arch Pharmalabs said, "Inorganic growth is a strong component of our growth strategy. After acquiring the company we immediately lay emphasis on the organic growth. Both companies we acquired are profitable and have tremendous scope for expansion of capacities and also are in strict compliance with environmental standards." He added, "The acquisition of Watsol Organics will strengthen our position as leader in the Isoxazole side chains business, thus meeting the growing demand in the industry. The Sibra facility will enhance API (Active Pharmaceutical Ingredients) business and open new avenues for us."

Arch also has plans to increase its product offering in anti-retroviral drugs (ARV) segment from this acquisition. "The ARV segment has huge potential to cater to various programmes under the aegis of WHO, UN PEPFAR and other relief programmes. Arch hopes to capitalize on this market. Further, the facility will be used to cater to the demand in the CRAMS sector for API's and intermediates," said Kamath. Watsol's facility is located 60 kms from Hyderabad spans over 40 acres of which 12 acres are currently being utilised. The plant has 21 reactors with a capacity of 44KL. Watsol also helps Arch in its backward integration plans, since it manufactures a key raw material, which is used in the manufacture of the isoxazole side chains.

The Sibra facility manufactures a variety of APIs. The company has three private equity investors like ICICI Ventures, IL&FS and Swiss Technology Venture Capital Fund (SwissTec) holding 58 percent stakes in Arch Pharmalabs. Of this, ICICI Ventures holds 33 percent while IL&FS and SwissTec have 12.5 percent each. Besides the internal accruals of over Rs 30 crore and further possible funding from private equity firms, the company has got a commitment from German financial institution DEG to meet the requirements of the fresh acquisition and expansion, Apart from Hyderabad facilities, Arch is planning of investing Rs 65 crore in the Gurgaon facility, besides revamping the corporate R&D facilities to attract contract outsourcing in R&D from European and American companies.