Friday, August 10, 2012

Claris Bought by Barclays, Sold by Promoter

Arjun S Handa, MD & CEO,
Claris Lifesciences Ltd.

By Mohammed K, Special Correspondent:
Friday, 10th August 2012, 09:45 PM IST:

Claris Lifesciences Ltd (BSE: 533288) counter in BSE, on Friday, witnessed a significant buy of 7.5 lakh shares by the FII, Barclays Capital Mauritius Ltd.

However, there was a larger sell of 10 lakh shares by Aditya Sushilkumar Handa, one of the promoters of Claris.

The deals were disclosed at Bombay Stock Exchange after trading hours on Friday.

This is the third time in the last four months that this promoter of the noted sterile injectables player is reducing his stake. 

But, as reported by StockExplain News on all three occasions, there were reputable counterparty buyers like IHAG Privatbank, Signet Healthcare, and now on Friday, a unit of Barclays PLC.

Due to Aditya S Handa’s first identified sell during April last week, promoter group stake of Claris had slipped to 67.28% in the quarter ending June, from the previous quarter’s 69%. It went down further to 64.56% due to his second sell towards July end.

Friday’s sell of 10 lakh shares amounts to a further 1.57% stake, and total promoter group stake now stands reduced at 62.99%. Though this total stake is relatively healthy by Indian standards, the continued sell by a promoter of significant quantities, within less than two quarters, is sure to raise eyebrows.

The parenteral products company with a global footprint has been going through a tough time since late 2010, due to an FDA ban on its products in USA, due to certain quality issues. Though its facility in Ahmedabad has since then gone through a re-audit by USFDA, in February 2012, Claris is yet to get the much-needed approval for marketing its products in US.

Apart from this issue, the promoter family has a troubled corporate governance track-record as some family members were promoters of another listed firm in the same business, which had gone defunct causing losses to many investors.

Aditya Handa still directly holds 39.68 lakh shares or 6.22% stake in Claris Lifesciences directly, and probably much more through other promoter group companies. However, 67.19% of his direct stake has been pledged as on June end, revealing that this promoter is basically using his stake in Claris to raise funds either through sells or pledges.

While Aditya is a Director in the company, he is not a Whole Time Director or Executive Director. He is known to have several business interests outside of Claris Lifesciences, and is maybe raising funds for the same.

The company is led by Aditya’s brother, Arjun S Handa, as its Managing Director & CEO.

Anyway, the company has experienced reasonable institutional buying until now, that has largely offset the damage from these significant promoter sells. For the quarter ending June, FII stake had increased by 0.76% to reach 9.18%, and DII stake had increased by 0.39% to record 11.97%.

However, institutional churn is evident from the fact that their combined holding has not increased in proportion to promoter’s selling.

Largest investors in Claris Lifesciences are, First Carlyle Ventures III, Tree Line Asia Master Fund (Singapore), Max New York Life Insurance Company, Privatbank IHAG Zurich AG, Copthall Mauritius Investment, and noted academician turned celebrity investor Prof. Shivanand Mankekar.

On Friday, Barclays invested Rs. 12.15 crore to pick up a 1.18% stake at Rs. 162 a share, while Aditya Handa raised Rs. 16.21 crore at Rs. 162.07 a share.

Institutional interest in the scrip is largely due to the sectoral interest in pharma, the high margins in the injectables business, as well as Claris’ effective reach across many countries.

Though its most recent results for the quarter ending June had unimpressive headline numbers like consolidated revenue growing by only 1.95% and consolidated net profit dipping by 14%, its core margins continue to be healthy. 

Claris enjoyed a consolidated EBITDA margin of 40.2% in the quarter ended June, while for this calendar year’s first six months, the margin stands at 35%. PAT margins are also reasonable at 16.6% and 14.4% respectively for these two periods.

Its Return on Equity (RoE) had slipped to 12% in 2011, from a healthy 15.47% in the previous year. The institutional bets seem to be that Claris would rebound to provide such healthy returns once the FDA approval is obtained.

One of Claris’ larger competitors, Strides Arcolab Ltd, has been enjoying much better P/E valuations on its good performance as well as better corporate governance standards.

Though Claris has informed recently that its products are now sold in 5 more countries taking the total tally to 96 countries, the impact of missing out on sales in USA is hurting its topline and bottomline.

Regarding the status of the USFDA issue, the company disclosed on Thursday that, “During the quarter the company received three follow-up queries from the FDA, the same have been replied to well within the stipulated time; we are now awaiting response from the FDA.”

On Friday, Claris Lifesciences closed trade in BSE at Rs. 164.10, down by 2.5%, while the core Sensex index closed flat.