Major Private Equity Firms Compete for Encube Stake
The competition for acquiring a significant stake in contract drug manufacturer Encube Ethicals Pvt. Ltd has intensified with global private equity heavyweights Advent International and Warburg Pincus entering the fray. According to three sources familiar with the development, these firms have joined existing interested parties including EQT, Blackstone, and KKR in what could become one of the largest deals in India's pharmaceutical sector.
Stake Sale Structure and Valuation Expectations
The transaction is likely to involve a controlling stake sale with Encube's promoters considering selling part of their holdings alongside Quadria Capital, which currently holds approximately 25% in the company. Quadria Capital is seeking a valuation between $2.2 billion and $2.3 billion for the 27-year-old pharmaceutical company, representing a substantial increase from its previous valuation.
Quadria Capital initially acquired around 15% stake in Encube for $100-120 million in June 2021, valuing the company at approximately $1 billion. Through subsequent follow-on investments and co-investments with limited partner Gulf Islamic Investments, Quadria's stake has grown to about 25% in the contract development and manufacturing organization (CDMO).
Company Background and Market Position
Founded in 1998 by Mehul Shah, Encube Ethicals has established itself as a prominent player in the topical drugs segment with a strong focus on research and development. The company serves several multinational pharmaceutical giants including Reckitt, Sanofi, Teva, GSK, and Bayer, having successfully developed and launched multiple products in regulated markets worldwide.
Financial data from Tracxn indicates that Encube achieved revenue of ₹1,000 crore in FY24, reflecting its strong market position and growth trajectory. The company's performance aligns with Quadria Capital's original investment thesis in 2021, which aimed to help Encube execute a robust expansion and growth strategy to establish itself as an integrated global leader in topical drugs.
Growing Investor Interest in CDMO Sector
The heightened competition for Encube underscores the increasing investor appetite for India's contract development and manufacturing organization space. This sector has been witnessing rising interest from both domestic and international investors, driven by several favorable market dynamics.
Recent transactions in the sector include Quadria Capital's $100 million investment in Hyderabad-based Aragen Life Sciences Ltd earlier this year and Maiva Pharma raising ₹1,000 crore from Morgan Stanley Private Equity Asia and India Life Sciences Fund last year.
According to a February report by Boston Consulting Group, India's CRDMO industry is poised for significant growth, expected to expand from the current $3-3.5 billion to $22-25 billion by 2035. This growth is primarily driven by rising demand for outsourcing of innovative pharmaceutical services and realignment in global supply chains, with global customers diversifying from China and seeking value-driven outsourcing solutions.
When contacted for comments, spokespersons for Blackstone, Warburg Pincus, KKR, Advent International, and JP Morgan declined to comment. Queries sent to EQT, Quadria Capital, and Encube Ethicals remained unanswered at the time of reporting.
