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Spin-off or demerger being considered by Aurobindo

By Nick Taylor , 11-May-2011

Aurobindo Pharma is considering demerging its API and formulation businesses to unlock value and better serve clients.

In January Aurobindo sold most of its stake in a China-based ingredient producer and is now considering making further changes to its operations. Full details are yet to emerge but the move could impact active pharmaceutical ingredient (API) and formulation operations at Aurobindo.

To further strengthen and provide focus to the growing volume of APIs and formulation business, the board has constituted a restructuring committee to explore and evaluate possible growth linked restructuring options”, said Aurobindo in a statement to the Bombay Stock Exchange .

The board is considering a spin-off, demerger or “other suitable form, with the ultimate objective of enhancing shareholders' value and customer satisfaction". Aurobindo has assigned company directors, including independents, to the committee and asked for a report within three months.

Details of a possible spin-off were published alongside full year financial results. Formulation sales grew 30.8 per cent year-on-year. Revenue from the formulation unit now accounts for 57.3 per cent of gross sales, up a few percentage points on last year.

Business shift & the $1bn club

The rising importance of the formulation unit comes as Aurobindo attempts to move away from its traditional core in commoditised ingredients to higher margin work. Exiting its Chinese ingredient venture was part of this strategy.

Double-digit growth in API sales was driven by demand for cephalosporins and antiretrovirals. An eight per cent dip in sales of semi-synthetic penicillins partially offset growth in these areas. Despite this dip overall consolidated sales totalled Rs 4,481 crore ($999m).

Aurobindo is pleased to join the billion dollar club of Indian pharmaceuticals fraternity. We continue to augment our Formulations and API businesses and create value for our stakeholders”, said Ramprasad Reddy, chairman of Aurobindo.

Shares in Aurobindo closed up 6.55 per cent at Rs 193.60.

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