Aurobindo Pharma Signs Pact To Sell U.S. Unit Natrol For $550 Million

Analysts see Aurobindo Pharma Ltd.'s move to sell a wholly owned subsidiary of its U.S. arm as lucrative, with surplus cash and reduced debt strengthening its balance sheet. The Indian drugmaker has reached a definitive agreement to sell Natrol LLC, a wholly owned subsidiary of Aurobindo Pharma USA, Inc., to New Mountain Capital and its affiliate Jarrow Formulas in an all cash transaction of $550 or Rs 4,048 crore, according to an exchange filing.

The deal is subject to regulatory approvals and expected to close by January 2021. "We are pleased to sell the Natrol business to an outstanding private equity player that can focus additional resources to grow Natrol, its products and brands further," N Govindarajan, managing director at Aurobindo Pharma, said in the filing. The proceeds, he said, are to be utilised towards debt reduction and for other strategic initiatives. Reacting to the development, shares of Aurobindo Pharma gained as much as 3% on Monday but but pared some of it to trade 1% higher. That compares with a 0.8% drop in the Nifty Pharma index.

Aurobindo Pharma has net debt of $191 million and this cash inflow is expected to not only turn the company into a net cash company before FY22, but also leave it with a strong balance sheet to pursue new capabilities or research and development to drive future growth, Investec said in a note. "With no leverage concerns—net cash by FY22—Aurobindo is best placed for a rerating."

According to Nirmal Bang Securities, Aurobindo will be a cash surplus company after the transaction. "The divestment may be neutral to EPS, but surplus cash position will allow room for strategic maneuvers. We view the transaction as a net positive and will wait to understand on how they look to deploy the proceeds. So far, they have an extraordinary track record on inorganic pursuits," the brokerage said in a note.

Aurobindo Pharma had acquired the assets of Natrol in December 2014. Its annual sales stood at $157 million for the 12 months ended March 31, 2020, as per its filing,

Besides making Aurobindo Pharma a zero-debt company, the transaction is good for repayment of loan, Prabhudas Lilladher said. "This might also help in payment of $100 million towards buying a minority stake in Eugia plant," the brokerage said.

The company, in a separate statement earlier this month, had said it plans to increase stake in Eugia Pharma Specialities Ltd., a joint venture with MViyeS Pharma Ventures Pvt., to 100%.