Granules India to exit from China jt venture.

Granules India Ltd. (GIL), recently announced its intention to divest its entire equity shareholding in Granules Biocause Pharmaceuticals Co. Ltd. by selling its stake to joint venture partner.

Granules Biocause Pharmaceuticals Co. Ltd. is an equal joint venture between GIL and Hubei Biocause Heilen Pharmaceutical Co. Ltd. The manufacturing facility of the joint venture is in Jingmen, China.

The Hyderabad-headquartered, Granules India formed the joint venture in 2007 to ensure a regular supply of Ibuprofen API to support its requirements for manufacturing Pharmaceutical Formulation Intermediates and Finished Dosages.

GIL's decision to dilute the stake of this joint venture will not impact its commitment of achieving the profitability target provided for the year even without any additional JV’s contribution in the consolidated net profit. Further, the sale proceeds from this transaction will improve Granules India’s cash position and will eventually reduce the net debt position.

The key reasons cited by the company for exiting the joint venture areenvironmental issues have created an atmosphere of business uncertainty in China. To comply with regulatory issues on pollution, Granules Biocause Pharmaceuticals’ production facility had invested and will continue to invest substantial capex, which is contrary to Granules India’s strategy of reducing capex outflow and free cash flow generation.

Secondly, several existing Ibuprofen API manufacturers have expanded capacity or stated their intention to increase it. In addition, several companies have announced their intention to enter the Ibuprofen API market. In view of these developments Granules believes the additional API supply will enable it to have more supply options and having a joint venture is not necessary to ensure Ibuprofen API continuity.

Granules has a supply agreement with the joint venture and Ibuprofen API supply will not be impacted since the existing agreement will continue. In addition, the company has several other reliable approved suppliers of Ibuprofen API in the international and domestic market.

HBL