Plethico Pharma: Inorganic prescription

Till nine years ago, it was just another manufacturer of price-controlled prescription drugs—anti-TB and anti-malarial— in the Indian market. Then, in 2000, it moved to being a herbal and nutraceutical (medicines made from food extracts) company. In 2003-04, the Mumbai-based Plethico Pharmaceuticals decided to stretch its wings into new geographies, and acquired a 51 per cent stake in Rezlov, Kazakhstan, for around Rs 100 crore. Thus began Plethico’s shift from a humble over-thecounter player to a herbal and nutraceutical major with a diversified international presence.

From Kazakhstan, Plethico moved into the US by buying out the Chatsworth (Los Angeles, California)-headquartered Natrol Inc. for $82 million last January, two years after going public. Natrol is a specialist in body-building supplements with a widespread US and Canadian distribution network. Soon after acquiring Natrol, Plethico acquired a 20 per cent stake in Tricon, a Dubai-based retail pharmacy chain for $20 million.

Suddenly, Plethico had emerged as a company with an international footprint. The acquisitions gave the company a foothold in—besides the US—other regulated markets like Europe, Australia, New Zealand, Hong Kong and China. It also now has a presence in the CIS (with Rezlov), Africa, South East Asia, Latin America and the GCC (Gulf Cooperation Council). “Given this huge scale of operations, it truly makes us a global player. The size of the nutraceuticals market is $200 billion plus and we are aiming to garner a big chunk of it,” says Shashikant Patel, Chairman & MD, Plethico Pharmaceuticals. The Natrol acquisition could prove to be the game-changer. As Sanjay Pai, Chief Financial Officer, Plethico, points outs, there were three big triggers for the transaction.

One, it helped Plethico become an international herbal and nutraceutical player with a strong American brand. Two, it can have access to a manufacturing base certified by the US Food & Drug Administration. And, three, Natrol has a huge retail reach with some 55,000 outlets across the US. A presence in the US with Natrol has also given Patel a chance to cross the final frontier—and take a homegrown product, Traisil, herbal lozenges to the US. Plethico may also soon look at transferring production back home to its manufacturing base in Indore in Madhya Pradesh. 

The Buyout Edge Acquisitions: Rezlov, CIS Region (2003-04); Natrol, US (2008); Price tag: $127 million Financing: Internal accruals, FCCB proceeds, debt Benefits derived: Gained control over the CIS region. Natrol gave a global reach and Tricon helped get a foothold in retail pharmacy Integration achieved: Plethico believes in letting the acquired companies be run by original promoters

Patel reveals that the acquisitions account for 45 per cent of Plethico’s consolidated revenues. The company was growing on a standalone basis at an average rate of 40 per cent over the past five years. But, the US acquisition has played a spoiler on the net profit margin, dragging it down from 25 per cent on a standalone basis to 18 per cent on a consolidated basis. However, Patel sees an increase in margins in the medium term, once the integration is truly complete.

Plethico financed the Natrol acquisition with an issue of foreign currency convertible bonds (FCCB) of $75 million. The bonds come up for conversion in October 2012. “To look into and evaluate options for managing the liabilities of the company through various initiatives, such as amending the terms and conditions of the outstanding FCCBs issued or restructuring the FCCBs, we have appointed Jefferies International to advise us to attain the objective,” explains Pai.

— Anusha Subramanian