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Morgan Stanley PE Asia buys 20% in ZCL for Rs 170 crore

Economic Times:  December, 2016

Mumbai: Morgan Stanley Private Equity Asia has picked up about 20% stake in ZCL Chemicals Ltd, formerly known as Zandu Chemicals, for Rs 170 crore.

The capital, raised from the private equity arm of global financial services company Morgan Stanley, will be used to fund the company’s growth, ZCL Chemicals said on Friday. ET had on July 14 first reported on the deal, which values ZCL Chemicals at about Rs 900 crore.

Mumbai-based ZCL Chemicals, which the Parikh family had sold to Emami in 2008 and bought back in 2009, manufactures active pharmaceuticals ingredients (APIs) and other chemical intermediates for the pharmaceutical industry.

“Life sciences and healthcare is one of the fastest-growing industries in India and a key focus sector for investments for Morgan Stanley Private Equity Asia (MSPEA),” said Nirav Mehta, co-head of MSPEA in India.

“ZCL has emerged as a promising company and has put in place building blocks for its future growth, with their focus on research and development, their emphasis on quality and governance, as well as their customer-centric approach to business.” Anand Rathi acted as financial advisor to ZCL on the deal.

“With Morgan Stanley Private Equity Asia’s financial expertise and global presence, we have conviction we can further accelerate the growth of ZCL that has already seen a growth rate over 30% CAGR in the last five years,” Nihar Parikh, executive director of ZCL Chemicals said in a statement. “This capital will give us additional resources to innovate and expand on a fast track in the established as well as emerging markets,” he said.

 When the Parikh family bought back the chemicals business from Emami Group in 2009 a year after selling ZanduBSE -1.32 % Pharmaceutical Works, the business had a turnover of Rs 32 crore.

Incorporated in 1991, ZCL Chemicals is into manufacturing and exports of fine chemicals, advanced drug intermediates and active pharmaceutical ingredients (API). Within APIs segment, it caters to a wide category of therapeutic segments including central nervous system, anti-viral, pain management and control substances.

The company has an USFDA approved plant at Ankleshwar in Gujarat along with research and development capabilities. In 2009, it had formed a joint venture with Nagase & Co of Japan. The Parikhs terminated the venture and brought back shares issued to Nagase in February 2014, citing changes in its priorities.

For the financial year ended March 2014, ZCL Chemicals derived nearly 97% of its sales from exports, mostly to regulated markets. The company’s income is primarily derived from anti-viral and control substances.

According to a September 2014 ratings report by CARE, in 2013-14, the company reported a posttax profit of Rs 26.73 crore, up from PAT of Rs 12.28 crore a year ago, on a total income of Rs 187.39 crore, which grew from Rs 177.58 crore in the previous year. As per its unaudited first quarter report for 2014-15, the company reported a PAT of Rs 4.65 crore on a total income of Rs 38.74 crore.

Morgan Stanley invests in India through its Asia fund. From its latest $1.7 billion corpus, the fund manager expects to invest about $300 million in India. The fund has been cautious in deploying capital in India.