Motilal Oswal PE arm buys majority stake in bulk drug maker Megafine for ₹460 crore

The alternative investment arm of Motilal Oswal Financial Services Ltd has acquired a majority stake in export-focused bulk drug maker Megafine Pharma Ltd for ₹460 crore, betting on its growth as global companies look to diversify supply chains out of China.

Motilal Oswal Alternates (MO Alts) is looking at further inorganic opportunities to grow the platform, Rohit Mantri, managing director and co-head of private equity at MO Alts, told Mint in an interview. “This is our first sole control investment as MO Alts, and we would focus on further strengthening R&D (research and development) and manufacturing capabilities, and creating a platform for further inorganic opportunities.”

“We’d look at inorganic opportunities on the platform…to add additional capacities, as well as to add [more] high-value complex therapy segments,” he said, adding that the fund has already started scouting for potential partnerships or acquisitions.

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Megafine is a Mumbai-based firm manufacturing niche active pharmaceutical ingredients (APIs), with two manufacturing facilities in Nashik and Vapi approved by the US Federal Drug Administration.

The manufacturer’s core therapies include central nervous system and cardiovascular diseases. It is backward integrated to make its own intermediates (API raw materials) and also offers contract manufacturing services to third-party customers.

Global tailwinds

India’s API export market, valued at $5 billion, is projected to grow to $80-90 billion by 2047, according to a recent report by Bain & Co., driven by global supply chain shifts as well as competitive advantages like low labour and manufacturing costs.

“There is a very strong double-digit growth, close to 15% at the industry level… The domestic formulation industry is growing at 11-12%, but the API industry is growing at a faster rate,” Mantri said. “Both on the contract manufacturing front and on the generic product front, people are looking at options beyond China for alternatives on the supply chain.”

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While Megafine is an export-focused company, it is fairly diversified in terms of markets. About 35% of its revenue comes from Europe, 35% from semi-regulated markets and the rest from large Indian generics exporters.

That should help the company given the current uncertainty surrounding the US, India’s biggest pharmaceutical exports market, as President Donald Trump plans to impose import tariffs.

“The idea was to have a well-diversified player [rather] than only a US focused player,” Mantri said.

Niche API focus

This is not MO Alts’ first investment in niche APIs. In 2018, it invested in Symbiotec, a leader in the steroids and hormones API space, through its third fund. The company is planning to float its initial public offering (IPO) in the next 18 months, Mantri said.

“Symbiotec has done tremendously well in the last five years… We continued to scout for niche API opportunities where gross margins in excess of 60%,” he added.

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The investment firm has invested in Megafine through its fourth private equity fund, which closed at ₹4,500 crore in 2022. Megafine has an Ebitda margin of 22-25%, Mantri said. Ebitda is earnings before interest, taxes, depreciation and amortization.