Warburg-Mubadala Lead the Race For Mehul Shah's Encube Ethicals

A consortium led by private equity firm Warburg Pincus and Abu Dhabi sovereign wealth fund Mubadala has emerged as the frontrunner to acquire up to 74% stake in Mumbai-based pharmaceutical company Encube Ethicals, The Economic Times reported.

The deal is expected to value Encube at around ₹16,500 crore. The consortium is competing with Swedish investment firm EQT, the only other "serious" bidder ahead of binding offers expected next week, the report added.

Encube Ethicals is a generics and pharamaceutical contract drug manufacturer, best known for brands like the Soframycin skin ointment.

Currently, the company's promoters, led by founder Mehul Shah and his family, hold about 84.2% stake. Financial investor Quadria Capital owns around 14.9%, while the remaining shares are held by employees.

According to ET, Quadria Capital is likely to fully exit as part of the deal. The promoter group is also expected to significantly reduce its stake and retain about 15-20%, becoming a minority partner. However, Mehul Shah is expected to continue as co-promoter until the company goes public, with an IPO likely in about four years.

Notably, immediate changes in management are unlikely. While the incoming investor will hold at least 51% stake, the final shareholding structure is still being negotiated and will remain below 75%.

Earlier, ET had reported that Quadria Capital had appointed JP Morgan to manage the sale process, which attracted interest from global private equity giants such as Blackstone, KKR and Partners Group.

The growing interest in Encube Ethicals comes at a time when pharmaceutical contract development and manufacturing organisations (CDMOs) are gaining significant momentum, both in India and globally.

According to a recent report by Boston Consulting Group, India's CDMO market, part of a broader pharmaceutical outsourcing boom, is expected to capture 4% to 5% of the global CDMO market. It also noted that India's CDMO market will double its growth to around $14 billion by 2028 from about $7 billion in 2023. This is driven by global supply chain shifts and cost advantages over China.

Indian CDMOs have seen a surge in requests from international drugmakers looking to diversify manufacturing away from China, with some firms reporting around a 50% year-on-year (YoY) increase in proposals in 2024 as outsourcing demand grows, BCG added.