Will use deal capital to pare debt, grow export mkt: Bafna

Strides Arcolab has bought a partial stake in Bafna Pharma for Rs 48.1 crore and this money will be used to pare the debt and grow the export market, says Bafna Mahaveer Chand, chairman and managing director, Bafna Pharma.

Speaking to CNBC-TV18, Chand says the joint venture (JV) will aid Raricap- the company's flagship brand's- annual sales.

Bafna and Strides have a deal under which the India branded generics business of Bafna will be transferred to a special purpose vehicle (SPV) in which Strides will hold 74 percent stake while 26 percent will be held by Bafna.

Below is the verbatim transcript of Bafna Mahaveer Chand's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: Can you tell us about the deal itself -- how much will Strides be acquiring Bafna's India generic's business for and how did you arrive at the valuations?

A: this is not a sale, it is a partnership with Strides. Strides is holding around 74 percent of equity and Bafna is holding 26 percent. So the perception that we have sold out is not correct. It is a partnership business and the valuation is generally as per the norms of the industry.

Sonia: Can you tell us what is the money involved even if this is a partnership after you sold your stake to Strides, what kind of money have you garnered?

A: Everybody knows that Strides is great at value creation and 26 percent equity that we are holding will be a great value creation for us and as for all of stakeholders.

Sonia: Now that this joint venture (JV) has been formed, what kind of earnings do you think Bafna Pharmaceuticals can generate?

A: The domestic business was contributing to us about 15 percent of our turnover. So the topline was not very significant. We will be doing the business around Rs 150 crore and that will be exclusively exports plus our institutional business. The whole deal of this branded generic business is contributing just 15 percent to our overall revenues.

Latha: What I wanted to know is even if it is not a sell, from 74 percent stake sale how much money did you make?

A: For 74 percent, we are getting Rs 48.1 crore.

Sonia: What will this money be used for?

A: It is primarily to reduce some debt and to grow our overseas business, which we are focussing. We are exporting to emerging markets, we are exporting to regulator markets so we will be a primarily exporting company that we were earlier.

Latha: How much may you lose in terms of your share because now you get only 24-26 percent of what those drugs will make?

A: Primarily we have to look at the domestic business. How it is growing now, it has become very competitive and needs a lot of resources. So if would have been holding 100 percent probably would have not grown as Strides would have grown. Because of this JV, Strides should be contributing a lot and probably we will be doing a better business than what we would have done alone.

Latha: What kind of sales growth are you expecting from these drugs?

A: They will be marketing these drugs and we are expecting at least Rs 200 crore in three years.

Sonia: You have sold I understand your flagship brand which is Raricap and you have got a big chunk of your earnings from that particular brand. Now that Raricap is out of the way -- first if you could give us reasons why you sold that brand and second now that it is out of your portfolio, what will the revenue trajectory look like for the remaining business?

A: Basically if you look at this - this brand we acquired from Johnson & Johnson in 2011. Till then we have been exporting to various countries. Basically we are an exporting company exporting to the regulated market of Europe and then emerging markets. These product came to us in 2011 and we have grown well. From Rs 6 crore to Rs 24 crore in these three years but then to grow from this Rs 24 crore to Rs 100 crore, you need lot of resources and deep pockets. Looking at the current market scenario, we felt if we form a JV with a stronger partner, it will be better for us and that is the whole reason for coming into this JV.

Latha: What were the sales of Raricap as of FY14 and now that you have the benefit of Strides backing, how much will the sales of Raricap grow by this year or FY16?

A: Up to FY14, the Raricap contributed Rs 20.5 crore to us and with this JV and Strides' support, probably it will go to Rs 100 crore in two years.

Sonia: In the due course of time in the next one-two years, will you be looking to pare off any more of your businesses?

A: Not really, basically this domestic business because of high resources we thought it is better we have a JV.

Sonia: What is the debt currently? You said you will use this Rs 48 crore to pare off some of your debt, what is the exact debt level currently?

A: It is approximately Rs 80 crore.

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