Drug giant Novartis AG has initiated a strategic review of its India-listed subsidiary Novartis India Ltd, amid reports that it is considering selling its 71% stake in the Indian business.
A Novartis India spokesperson confirmed that Novartis AG has commenced this strategic review to assess its shareholding in the listed entity, though no decision has been made yet regarding the outcome.
Unconfirmed media reports suggest that Indian drugmaker Dr. Reddy’s Laboratories Ltd. is a potential contender to acquire Novartis AG’s majority stake in Novartis India. While Dr. Reddy’s declined to comment, analysts see strategic merits in such an acquisition for the company.
In 2022, Dr. Reddy’s purchased Novartis’ cardiovascular brand Cidmus in India and entered into an exclusive sales and distribution deal for some of Novartis’ established medicine portfolios such as Voveran and Methergine. These distributed portfolios have seen double-digit volume growth per Novartis India’s annual report.
Research firm Nomura stated that given the existing distribution arrangement covering ~50% of Novartis India’s sales, Dr. Reddy’s is well-positioned to acquire a majority stake. The remaining key brands such as Myfortic and Tegrital, where Novartis has high market share, can complement Dr. Reddy’s presence in those segments.
Analysts believe the acquisition makes strategic sense for Dr. Reddy’s, It aligns with Dr. Reddy’s aim to grow its India business and increase EBITDA margins from 15-20% currently to the 25-27% range.
However, valuations may be steep as pharma deals in India tend to happen at 5-6x price/sales multiples. Any transaction will hinge on Novartis’ willingness to strike a deal after concluding its strategic review process.
