Emcure Pharma - IPO Prospectus - 2013
Transcript of Emcure Pharma - IPO Prospectus - 2013
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DRAFT RED HERRING PROSPECTUS
Dated June 26, 2013Please read Section 60B of the Companies Act, 1956
(The Draft Red Herring Prospectus will be updated upon filing with the RoC)
Book Built Issue
EMCURE PHARMACEUTICALS LIMITED
Our Company was incorporated as Emcure Pharmaceuticals Private Limited on April 16, 1981, at Pune, as a private limited company under the Companies Act, 1956, as amended(the Companies Act). Thereafter, our Company was converted into a public limited company on August 20, 2001 and consequently, the name of our Company was changed to
Emcure Pharmaceuticals Limited. For details of changes in the name and the registered office of our Company, see the section History and Certain Corporate Matters on page149.
Registered Office: Emcure House, T 184, M.I.D.C., Bhosari, Pune 411 026Tel: (91 20) 2712 0084 / 3061 0000 / 4070 0000; Fax: (91 20) 3061 0111
Contact Person: Kedar P. Phadke, Company Secretary and Compliance OfficerEmail:[email protected]; Website: www.emcure.co.in
Promoters of our Company: Satish Ramanlal Mehta and Sunil Rajanikant Mehta
PUBLIC ISSUE OF [] EQUITY SHARES OF FACE VALUE 10 EACH (THE EQUITY SHARES) OF EMCURE PHARMACEUTICALS LIMITED (THECOMPANY OR THE ISSUER) FOR CASH AT A PRICE OF [] PER EQUITY SHARE (INCLUDING A SHARE PREMIUM OF [] PER EQUITY SHARE)
AGGREGATING TO [] MILLION CONSISTING OF A FRESH ISSUE OF [] EQUITY SHARES AGGREGATING UP TO 3,000 MILLION (THE FRESH
ISSUE) AND AN OFFER FOR SALE OF UP TO 2,513,057 EQUITY SHARES BY THE SELLING SHAREHOLDERS (AS DEFINED IN THE SECTION
DEFINITIONS AND ABBREVIATIONS) AGGREGATING UP TO [] MILLION (THE OFFER FOR SALE AND TOGETHER WITH THE FRESH ISSUE,
THE ISSUE). THE ISSUE WILL CONSTITUTE []% OF THE POST -ISSUE PAID-UP EQUITY SHARE CAPITAL OF OUR COMPANY.
THE FACE VALUE OF EQUITY SHARES IS 10EACH. THE PRICE BAND AND THE MINIMUM BID LOT WILL BE DECIDED BY OUR COMPANY ANDTHE SELLING SHAREHOLDERS IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGERS (THE BRLMS) AND WILL BE ADVERTISED AT
LEAST FIVE WORKING DAYS PRIOR TO THE BID/ISSUE OPENING DATE.
In case of any revisions in the Price Band, the Bid/Issue Period will be extended by at least three additional Working Days after such revision of the Price Band, subject to the
Bid/Issue Period not exceeding 10 Working Days. Any revision in the Price Band and the revised Bid/ Issue Period, if applicable, will be widely disseminated by notification to theBSE Limited (BSE) and the National Stock Exchange of India Limited (NSEtogether with the BSE referred to as the Stock Exchanges), by issuing a press release, and alsoby indicating the change on the website of the BRLMs, the Syndicate Members and the Self Certified Syndicate Banks (SCSBs).
In terms of Rule 19(2)(b)(ii) of the Securities Contracts (Regulation) Rules, 1957, as amended (the SCRR), this is an Issue fo r at least 10% of the post-Issue capital where thepost-Issue capital of our Company calculated at the Issue Price will be more than `40,000 million. The Issue is being made through the Book Building Process wherein not morethan 50% of the Issue shall be available for allocation on a proportionate basis to Qualified Institutional Buyer (QIB) Bidders. 5% of the QIB Portion (excluding Anchor InvestorPortion) shall be available for allocation on a proportionate basis to Mutual Funds only, and the remainder of the QIB Portion shall be available for allocation on a proportionate
basis to all QIBs, including Mutual Funds, subject to valid Bids being received at or above the Issue Price. Further, not less than 15% of the Issue shall be available for allocationon a proportionate basis to Non-Institutional Bidders and not less than 35% of the Issue shall be available for allocation to Retail Individual Bidders, subject to valid Bids beingreceived at or above the Issue Price. QIBs (other than Anchor Investors) and Non-Institutional Bidders shall participate in the Issue through the Application Supported by BlockedAmount (ASBA) process only providing the details of the bank account which will be blocked by the SCSBs to the extent of the Bid Amount for the same. Retail IndividualBidders may also participate in the Issue through the ASBA process. For details, see the section Issue Procedure on page 394.
RISK IN RELATION TO THE FIRST ISSUE
This being the first public issue of our Company, there has been no formal market for the Equity Shares of our Company. The face value of the Equity Shares is `10 per EquityShare. The Floor Price is []times the face value and the Cap Price is []times the face value. The Issue Price (determined and justified by our Company in consultation with theBRLMs as stated under the section Basis for Issue Price on page 102) should not be taken to be indicative of the market price of the Equity Shares after the Equity Shares arelisted. No assurance can be given regarding an act ive or sustained trading in the Equity Shares or regarding the price at which the Equity Shares will be traded after listing.
IPO GRADING
This Issue has been graded by [], indicating []. For details, see the section General Information on page 57.
GENERAL RISKS
Investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds in this Issue unless they can afford to take the risk of losingtheir entire investment. Investors are advised to read the risk factors carefully before taking an investment decision in t his Issue. For taking an investment decision, investors mustrely on their own examination of our Company and the Issue, including the risks involved. The Equity Shares offered in the Issue have not been recommended or approved by theSecurities and Exchange Board of India (SEBI), nor does SEBI guarantee the accuracy or adequacyof the co ntents of this Draft Red Herring Prospectus. Specific attention of theinvestors is invited to the section Risk Factors on page 16.
ISSUERS AND SELLING SHAREHOLDERS ABSOLUTE RESPONSIBILITY
Our Company, having made all reasonable inquiries, accepts responsibility for and confirms that this Draft Red Herring Prospectus contains all information with regard to ourCompany and the Issue, which is material in the context of the Issue, that the information contained in this Draft Red Herring Prospectus is true and correct in all material aspectsand is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that t here are no other facts, the omission of which makes thisDraft Red Herring Prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. Further, each SellingShareholder accepts that this Draft Red Herring Prospectus contains all information about it as the Selling Shareholder in the context of the Offer for Sale and assumesresponsibility for statements in relation to such Selling Shareholder included in this Draft Red Herring Prospectus.
LISTING
The Equity Shares offered through the Red Herring Prospectus are proposed to be listed on the BSE and the NSE. We have received an in-principle approval from each of BSEand NSE for the listing of the Equity Shares pursuant to the letters dated [] and [], respectively. For the purposes of t he Issue, the Designated Stock Exchange shall be [].
BOOK RUNNING LEAD MANAGERS# REGISTRAR TO THE ISSUE
DSP Merrill Lynch Limited
8thFloor, Mafatlal Center, Nariman PointMumbai 400 021Tel: (91 22) 6632 8000Fax: (91 22) 2282 5103Email: [email protected] grievance email:[email protected]: www.dspml.comContact Person: Kamna SahniSEBI Registration No.: INM000011625
IDFC Capital Limited
Naman ChambersC-32, G BlockBandra Kurla ComplexBandra (East), Mumbai 400 051Tel : (91 22) 6622 2600Fax : (91 22) 6622 2501Email :[email protected] Grievance Email:[email protected]: www.idfccapital.comContact Person: Hiren RaipancholiaSEBI Registration No.:INM000011336
Morgan Stanley India Company Private
Limited
18F/19F, Tower 2, One Indiabulls Centre841, Senapati Bapat MargMumbai 400 013Tel : (91 22) 6118 1000Fax : (91 22) 6118 1040Email: [email protected] Grievance Email:[email protected]:www.morganstanley.com/indiaofferdocumentsContact Person: Shashank MoreSEBI Registration No.: INM000011203
Link Intime India Private
Limited
C-13, Pannalal Silk MillsCompoundL. B. S. MargBhandup (West)Mumbai 400 078Tel: (91 22) 2596 3838Fax: (91 22) 2594 5960Email :[email protected]: www.linkintime.co.inContact Person: MeghashyamShirodkar
BID/ ISSUE PROGRAMME*
BID/ISSUE OPENS ON: []* BID/ISSUE CLOSES ON: []**#Names of the Book Running Lead Managers appearing in alphabetical order.
*Our Company and the Selling Shareholders may, in consultation with BRLMs, consider participation by Anchor Investors in accordance with the SEBI Regulations. The Anchor Investor Bid/ Issue Period shall be
one Working Day prior to the Bid/ Issue Opening Date.**
Our Company and the Selling Shareholders may, in consultation with BRLMs, consider closing the Bid/Issue Period for QIBs one Working Day prior to the Bid/Issue Closing Date in accordance with the SEBIRegulations.
mailto:[email protected]:[email protected]://www.emcure.co.in/http://www.emcure.co.in/http://www.emcure.co.in/mailto:[email protected]:[email protected]://www.dspml.com/mailto:[email protected]:[email protected]://www.idfccapital.com/mailto:[email protected]:[email protected]:[email protected]://www.morganstanley.com/indiaofferdocumentsmailto:[email protected]://www.linkintime.co.in/http://www.linkintime.co.in/mailto:[email protected]://www.morganstanley.com/indiaofferdocumentsmailto:[email protected]:[email protected]://www.idfccapital.com/mailto:[email protected]:[email protected]://www.dspml.com/mailto:[email protected]:[email protected]://www.emcure.co.in/mailto:[email protected] -
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TABLE OF CONTENTS
SECTION I: GENERAL .............................................................................................................................. 3DEFINITIONSANDABBREVIATIONS ............................................................ ...................................... 3PRESENTATIONOFFINANCIAL,INDUSTRYANDMARKETDATA ............................................. 13FORWARD-LOOKINGSTATEMENTS ................................................................................................. 15
SECTION II: RISK FACTORS ................................................................. ................................................ 16SECTION III: INTRODUCTION ............................................................................................................. 47
SUMMARYOFINDUSTRY ......................................................... ........................................................... 47SUMMARYOFBUSINESS .......................................................... ........................................................... 49SUMMARYFINANCIALINFORMATION ................................................................. ........................... 51THEISSUE ............................................................................................................................................... 55GENERALINFORMATION ......................................................... ........................................................... 57CAPITALSTRUCTURE ...................................................................................................................... .... 67OBJECTSOFTHEISSUE ............................................................. ........................................................... 95BASISFORISSUEPRICE ..................................................................................................................... 102STATEMENTOFTAXBENEFITS ..................................................................................................... .. 105
SECTION IV: ABOUT THE COMPANY .............................................................................................. 116INDUSTRYOVERVIEW .............................................................. ......................................................... 116OURBUSINESS ................................................................ ................................................................... .. 127REGULATIONSANDPOLICIES ......................................................................................................... 145HISTORYANDCERTAINCORPORATEMATTERS ........................................................... .............. 149SUBSIDIARIES ................................................................. ................................................................... .. 153MANAGEMENT ................................................................ .................................................................. .. 160PROMOTERSANDPROMOTERGROUP ......................................................... .................................. 179RELATEDPARTYTRANSACTIONS ................................................................ .................................. 182DIVIDENDPOLICY .............................................................................................................................. 183
SECTION V: FINANCIAL INFORMATION ................................................................ ........................ 184FINANCIALSTATEMENTS ................................................................... .............................................. 184AUDITORSREPORTONDECLARATIONBYTHECOMPANYINRELATIONTOACQUISITIONOFASUBSIDIARY................................................................................................................................ 321MANAGEMENTSDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS .................................................................................................................................. 324
SECTION VI: LEGAL AND OTHER INFORMATION ........................................................ .............. 351OUTSTANDINGLITIGATIONANDMATERIALDEVELOPMENTS .............................................. 351GOVERNMENTANDOTHERAPPROVALS ............................................................... ....................... 364OTHERREGULATORYANDSTATUTORYDISCLOSURES ......................................................... .. 371
SECTION VII: ISSUE INFORMATION .............................................................. .................................. 385TERMSOFTHEISSUE ......................................................................................................................... 385ISSUESTRUCTURE ........................................................... ................................................................. .. 388ISSUEPROCEDURE ............................................................................................................................. 394
SECTION VIII: MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION ........................... 434SECTION IX: OTHER INFORMATION .............................................................................................. 480
MATERIALCONTRACTSANDDOCUMENTSFORINSPECTION ................................................. 480DECLARATION ................................................................ ................................................................... .. 483
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SECTION I: GENERAL
DEFINITIONS AND ABBREVIATIONS
This Draft Red Herring Prospectus uses certain definitions and abbreviations which, unless the contextotherwise indicates or implies, shall have the meaning as provided below. References to any legislation, act
or regulation shall be to such legislation, act or regulation as amended from time to time.
General Terms
Term Description
Our Company, TheCompany or the Issuer
Emcure Pharmaceuticals Limited, a company incorporated under theCompanies Act and having its Registered Office at Emcure House, T 184,M.I.D.C., Bhosari, Pune 411 026
We, our or us Unless the context otherwise indicates or implies, refers to the Companytogether with its Subsidiaries
Company Related Terms
Term Description
Articles/ Articles ofAssociation
Articles of Association of our Company
Auditors/Statutory Auditors Statutory auditors of our Company, Price Waterhouse, CharteredAccountants
Blackstone Blackstone GPV Capital Partners Mauritius V-C Limited
Board/ Board of Directors Board of directors of our Company or a duly constituted committee thereof
Director(s) Director(s) of our Company
Equity Shares Equity shares of our Company of face value of `10 each fully paid-up
Emcure ESOP 2013 The employee stock option scheme of our Company approved at themeeting of the shareholders held on June 14, 2013 pursuant to which thestock options would be granted to our directors and employees
Group Companies Companies, firms and ventures promoted by our Promoters, irrespective of
whether such entities are covered under Section 370(1)(B) of theCompanies Act or not
Key ManagementPersonnel/KMP
Key management personnel in terms of Regulation 2(s) of the SEBIRegulations and disclosed in the section Management on page 160
Listing Agreement Listing agreement to be entered by our Company with the Stock Exchanges
Memorandum ofAssociation
Memorandum of Association of our Company
OCRPS Optionally convertible redeemable preference shares of our Company
Preference Shares Preference shares of our Company of face value of `10 each fully paid-up
Promoters Promoters of our Company, Satish Ramanlal Mehta and Sunil RajanikantMehta. For details, see the section Promoters and Promoter Group on
page 179
Promoter Group Persons and entities constituting the promoter group of our Company in
terms of Regulation 2(zb) of the SEBI Regulations and disclosed in thesection Promoter and Promoter Group on page 179
Registrar of Companies/RoC Registrar of Companies, Pune PMT Building, 3rd
Floor, DeccanGymkhana, Pune 411 004
Registered Office The registered office of our Company, which is located at Emcure House,T 184, M.I.D.C., Bhosari, Pune 411 026
Selling Shareholders Blackstone, Arun Kumar Khanna, Mahesh Nathalal Shah, AvinashMedhekar, Bhalchandra Khare and Padmini Khare, Shreekant KrushnajiBapat and Alaka Bapat, R.P. Soonawala, Berjis Minoo Desai, N.K. Sagar,Milind Lad, Uday Borde, Raju P. Kalera, Humayun Dhanrajgir and JiniDhanrajgir, Vijay Kulkarni, Dr. Mukund Keshao Gurjar, Mukund Ranade,Dev Balaji, Jitendra Vir Singh, Prakash Kumar Guha, Chandrakant V.Shetty, Shriram Balasubramaniam, Dr. Mahedra Patel, Dr. Sanjay Singhand Kavita Singh, Marvin Samson and Fakrul Sayeed
Shareholders Shareholders of our Company
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Term Description
Subsidiaries Subsidiaries of our Company being, Zuventus Healthcare Limited,Gennova Biopharmaceuticals Limited, Uth Healthcare Limited, EmcurePharmaceuticals USA, Inc., Heritage Pharma Holdings, Inc., Emcure BrasilFarmaceutica LTDA, Emcure Pharmaceuticals Mena FZ-LLC, Dubai,Emcure Nigeria Limited, Emcure Pharmaceuticals South Africa (Pty)
Limited, Emcure Pharma UK Limited, Emcure Pharmaceuticals SingaporePte. Limited, Heritage Pharmaceuticals Inc., USA, and Emcure- HeritageCanada Inc. For details, see the section Subsidiaries on page 153
Issue Related Terms
Term Description
Allotment/ Allot/ Allotted Unless the context otherwise requires, the allotment of the Equity Sharespursuant to the Fresh Issue and transfer of the Equity Shares pursuant to theOffer for Sale to the successful Bidders
Allottee A successful Bidder to whom the Equity Shares are Allotted
Allotment Advice Note or advice or intimation of Allotment sent to the Bidders who are to beAllotted Equity Shares after the Basis of Allotment has been approved by
the Designated Stock ExchangeAnchor Investor A Qualified Institutional Buyer, applying under the Anchor Investor
Portion, with a minimum Bid of `100 million
Anchor Investor Bid/ IssuePeriod
The day, one Working Day prior to the Bid/Issue Opening Date, on whichBids by Anchor Investors shall be submitted and allocation to AnchorInvestors shall be completed
Anchor Investor Issue Price Final price at which the Equity Shares will be issued and Allotted toAnchor Investors in terms of the Red Herring Prospectus and theProspectus, which price will be equal to or higher than the Issue Price, butnot higher than the Cap Price. The Anchor Investor Issue Price will bedecided by our Company in consultation with the BRLMs
Anchor Investor Portion Up to 30% of the QIB Portion, which may be allocated by our Companyand the Selling Shareholders, in consultation with the BRLMs, to AnchorInvestors on a discretionary basis. One-third of the Anchor Investor Portionshall be reserved for domestic Mutual Funds, subject to valid Bids beingreceived from domestic Mutual Funds at or above the price at whichallocation is being done to Anchor Investors
Application Supported byBlocked Amount/ASBA
A process of submitting the Bid cum Application Form, whether physicalor electronic, used by Bidders, other than Anchor Investors, to make a Bidauthorising a SCSB to block the Bid Amount in the ASBA Accountmaintained with the SCSB. ASBA is mandatory for QIBs (except AnchorInvestors) and the Non-Institutional Bidders participating in the Issue
ASBA Account An account maintained with the SCSB and specified in the Bid cumApplication Form for blocking the Bid Amount mentioned in the Bid cumApplication Form
ASBA Bidder Prospective investors (except Anchor Investors) in this Issue who intend tosubmit Bid through the ASBA process
Banker(s) to theIssue/Escrow CollectionBank(s)
Banks which are clearing members and registered with SEBI as bankers toan issue and with whom the Escrow Account will be opened, in this case
being []
Basis of Allotment Basis on which the Equity Shares will be Allotted to successful Biddersunder the Issue and which is described in the section Issue Procedure -Basis of Allotment on page 426
Bid An indication to make an offer during the Bid/Issue Period by a Bidderpursuant to submission of the Bid cum Application Form, or during theAnchor Investor Bid/Issue Period by the Anchor Investors, to subscribe tothe Equity Shares of our Company or purchase the Equity Shares from theSelling Shareholders at a price within the Price Band, including all
revisions and modifications theretoBid Amount The highest value of the optional Bids indicated in the Bid cum
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Term Description
Application Form
Bid cum Application Form The form used by a Bidder, including an ASBA Bidder, to make a Bid andwhichwill be considered as the application for Allotment in terms of the RedHerring Prospectus and the Prospectus
Bid/ Issue Closing Date Except in relation to any Bids received from the Anchor Investors, the dateafter which the Syndicate, the Designated Branches and the RegisteredBrokers will not accept any Bids for the Issue, which shall be notified in[] edition of English national newspaper [], [] edition of Hindi nationalnewspaper [], and [] edition of regional language newspaper [], eachwith wide circulationOur Company and the Selling Shareholders may, in consultation with theBRLMs, consider closing the Bid/Issue Period for QIBs one Working Day
prior to the Bid/Issue Closing Date in accordance with the SEBIRegulations
Bid/ Issue Opening Date Except in relation to any Bids received from the Anchor Investors, the dateon which the Syndicate, the Designated Branches and the RegisteredBrokers shall start accepting Bids for the Issue, which shall be notified in
[] edition of English national newspaper [], [] edition of Hindi nationalnewspaper [], and [] edition of regional language newspaper [], eachwith wide circulation
Bid/ Issue Period Except in relation to Anchor Investors, the period between the Bid/IssueOpening Date and the Bid/Issue Closing Date, inclusive of both days,during which prospective Bidders can submit their Bids, including anyrevisions thereof
Bid Lot []
Bidder Any prospective investor who makes a Bid pursuant to the terms of the RedHerring Prospectus and the Bid cum Application Form
Book Building Process The book building process, as provided in Schedule XI of the SEBIRegulations, in terms of which this Issue is being made
Broker Centres A broker center where the terminals of one or both the Stock Exchangesare available wherein a Registered Broker may accept the Bid cumApplication Forms, a list of such broker centers is available on the websiteof the respective Stock Exchanges
BRLMs/Book Running LeadManagers
The book running lead managers to the Issue, being DSPML,IDFC Capitaland Morgan Stanley
CAN / Confirmation ofAllocation Note
Notice or intimation of allocation of the Equity Shares sent to AnchorInvestors, who have been allocated the Equity Shares, after the AnchorInvestor Bid/Issue Period
Cap Price The higher end of the Price Band, above which the Issue Price will not befinalised and above which no Bids will be accepted
Controlling Branches Such branches of SCSBs which coordinate Bids under the Issue with theBRLMs, the Registrar and the Stock Exchanges, a list of which is available
on the website of SEBI at http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised - Intermediaries
Cut-off Price The Issue Price, finalised by our Company in consultation with BRLMs.Only Retail Individual Bidders are entitled to Bid at the Cut-off Price.QIBs and Non-Institutional Bidders are not entitled to Bid at the Cut-offPrice
DSPML DSP Merrill LynchLimited
Designated Branches Such branches of the SCSBs which shall collect the Bid cum ApplicationForms used by the ASBA Bidders, a list of which is available on thewebsite of SEBI athttp://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries
Designated Date The date on which the funds are transferred from the Escrow Account orthe amount blocked by the SCSBs is transferred from the ASBA Accounts,
as the case may be, to the Public Issue Account or the Refund Account, asappropriate, after the Prospectus is filed with RoC, following which the
http://www.sebi.gov.in/sebiweb/home/%20list/5/33/0/0/Recognisedhttp://www.sebi.gov.in/sebiweb/home/%20list/5/33/0/0/Recognisedhttp://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/http://www.sebi.gov.in/sebiweb/home/%20list/5/33/0/0/Recognisedhttp://www.sebi.gov.in/sebiweb/home/%20list/5/33/0/0/Recognised -
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Term Description
Board of Directors shall Allot the Equity Shares to successful Bidders inthe Fresh Issue and the Selling Shareholders shall give delivery instructionsfor the transfer of the Equity Shares constituting the Offer for Sale
Designated Stock Exchange []
Draft Red Herring Prospectus
or DRHP
This Draft Red Herring Prospectus dated June 26, 2013 issued in
accordance with section 60B of the Companies Act and the SEBIRegulations, which does not contain complete particulars of the price atwhich the Equity Shares will be Allotted and the size of the Issue
Eligible NRI(s) NRI(s) from jurisdictions outside India where it is not unlawful to make anoffer or invitation under the Issue and in relation to whom the Bid cumApplication Form and the Red Herring Prospectus constitutes an invitationto subscribe to or purchase the Equity Shares
Eligible QFIs QFIs from such jurisdictions outside India where it is not unlawful to makean offer or invitation under the Issue and in relation to whom the Bid cumApplication Form and the Red Herring Prospectus constitutes an invitationto purchase the Equity Shares offered thereby and who have opened demataccounts with SEBI registered qualified depository participants
Engagement Letter The engagement letter dated June 26, 2013 between our Company and the
BRLMsEscrow Account Account opened with the Escrow Collection Bank(s) and in whose favour
the Bidders (excluding the ASBA Bidders) will issue cheques or drafts inrespect of the Bid Amount when submitting a Bid
Escrow Agent The escrow agent appointed pursuant to the Share Escrow Agreement,being []
Escrow Agreement Agreement to be entered into between our Company, the SellingShareholders, the Registrar to the Issue, the BRLMs, the SyndicateMembers, the Escrow Collection Bank(s) and the Refund Bank(s) forcollection of the Bid Amounts and where applicable, refunds of theamounts collected to the Bidders (excluding the ASBA Bidders) on theterms and conditions thereof
First Bidder Bidder whose name appears first in the Bid cum Application Form
Floor Price The lower end of the Price Band, subject to any revision thereto, at orabove which the Issue Price will be finalised and below which no Bids will
be accepted
Fresh Issue The fresh issue of [] Equity Shares aggregating up to `3,000.00 millionby our Company
IDFC Capital IDFC Capital Limited
IPO Grading Agency []
Issue Public issue of [] Equity Shares for cash at a price of ` [] eachaggregating up to `[] million comprising of the Fresh Issue and the Offerfor Sale
Issue Agreement The agreement dated June 26, 2013 between our Company, the SellingShareholders and the BRLMs, pursuant to which certain arrangements are
agreed to in relation to the IssueIssue Price The final price at which the Equity Shares will be issued/transferred and
Allotted in terms of the Red Herring Prospectus. The Issue Price will bedecided by our Company in consultation with BRLMs on the Pricing Date
Issue Proceeds The proceeds of the Issue available to the Company and the SellingShareholders. For further information about use of the Issue Proceeds, seethe section Objects of the Issue on page 95
Morgan Stanley Morgan Stanley India Company Private Limited
Mutual Fund Portion 5% of the QIB Portion (excluding the Anchor Investor Portion), or []Equity Shares which shall be available for allocation to Mutual Funds only
Net Proceeds Proceeds of the Fresh Issue less our Companys share of Issue expenses.For further information about the Issue expenses, see the section Objectsof the Issue on page 95
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Term Description
Non-Institutional Bidders All Bidders that are not QIBs or Retail Individual Bidders and who haveBid for the Equity Shares for an amount more than ` 200,000 (but notincluding NRIs other than Eligible NRIs)
Non-Institutional Portion The portion of the Issue being not less than 15% of the Issue consisting of[] Equity Shares which shall be available for allocation on a proportionate
basis to Non-Institutional Bidders, subject to valid Bids being received ator above the Issue Price
Offer for Sale The offer for sale of up to 2,513,057 Equity Shares by the SellingShareholders at the Issue Price, pursuant to the terms of the Red HerringProspectus
Price Band Price Band of a minimum price of `[] per Equity Share (Floor Price) andthe maximum price of ` [] per Equity Share (Cap Price), including anyrevisions thereof. The Price Band and the minimum Bid Lot size for theIssue will be decided by our Company and the Selling Shareholders inconsultation with the BRLMs and advertised, at least five Working Days
prior to the Bid/Issue Opening Date, in [] edition of English nationalnewspaper [], [] edition of Hindi national newspaper [], and [] editionof regional language newspaper [], each with wide circulation
Pricing Date The date on which our Company in consultation with BRLMs will finalisethe Issue Price
Prospectus The Prospectus to be filed with RoC in accordance with section 60 of theCompanies Act, containing, inter alia, the Issue Price that is determined atthe end of the Book Building Process, the size of the Issue and certain otherinformation
Public Issue Account Account opened with the Bankers to the Issue to receive monies from theEscrow Account and from the ASBA Account on the Designated Date
Qualified Foreign Investorsor QFIs
Non-resident investors, other than SEBI registered FIIs or sub-accounts orSEBI registered FVCIs, who meet know your client requirements
prescribed by SEBI and are resident in a country which is (i) a member ofFinancial Action Task Force or a member of a group which is a member ofFinancial Action Task Force; and (ii) a signatory to the InternationalOrganisation of Securities Commissions Multilateral Memorandum ofUnderstanding or a signatory of a bilateral memorandum of understandingwith SEBI.Provided that such non-resident investor shall not be resident in a countrywhich is listed in the public statements issued by Financial Action TaskForce from time to time on: (i) jurisdictions having a strategic Anti-MoneyLaundering/Combating the Financing of Terrorism deficiencies to whichcounter measures apply; (ii) jurisdictions that have not made sufficient
progress in addressing the deficiencies or have not committed to an actionplan developed with the Financial Action Task Force to address thedeficiencies
QIB Portion The portion of the Issue (including the Anchor Investor Portion) amountingto not more than 50% of the Issue being []Equity Shares, which shall beavailable for allocation to QIBs, including the Anchor Investors
Qualified Institutional Buyersor QIBs
Qualified institutional buyers as defined under Regulation 2(1)(zd) of theSEBI Regulations
Red Herring Prospectus orRHP
The Red Herring Prospectus issued in accordance with section 60B of theCompanies Act and the provisions of the SEBI Regulations, which doesnot have complete particulars of the price at which the Equity Shares will
be offered and the size of the Issue. The Red Herring Prospectus will befiled with the RoC at least three days before the Bid/Issue Opening Dateand will become the Prospectus upon filing with the RoC after the PricingDate
Refund Account(s) The account opened with the Refund Bank(s), from which refunds, if any,of the whole or part of the Bid Amount (excluding refunds to ASBA
Bidders) shall be madeRefund Bank(s) []
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Term Description
Refunds through electronictransfer of funds
Refunds through NECS, Direct Credit, RTGS or NEFT, as applicable
Registered Brokers A broker registered with SEBI under the Securities and Exchange Board ofIndia (Stock Brokers and Sub Brokers Regulations), 1992 and who is amember of the Stock Exchange operating from any of the Broker Centers,
and is eligible to accept Bid cum Application Forms in terms of the SEBIcircular no. CIR/CFD/14/2012 dated October 4, 2012
Registrar to theIssue/Registrar
Registrar to the Issue, in this case being Link Intime India Private Limited
Retail Individual Bidder(s) Individual Bidders who have Bid for the Equity Shares for an amount notmore than `200,000 in any of the bidding options in the Issue (includingHUFs applying through their Karta and Eligible NRIs)
Retail Portion The portion of the Issue being not less than 35% of the Issue consisting of[] Equity Shares which shall be available for allocation on a proportionate
basis to Retail Individual Bidder(s)
Revision Form Form used by the Bidders, including ASBA Bidders, to modify the quantityof the Equity Shares or the Bid Amount in any of their Bid cumApplication Forms or any previous revision form(s). Kindly note that QIBs
and Non-Institutional Bidders are not allowed to lower their Bid oncesubmitted
Self Certified SyndicateBank(s) or SCSB(s)
The banks registered with SEBI, offering services in relation to ASBA, alist of which is available on the website of SEBI athttp://www.sebi.gov.in/sebiweb /home /list/5/33/0/0/Recognised-Intermediaries
Share Escrow Agreement The agreement dated [] entered into amongst the Selling Shareholders,our Company and the Escrow Agent in connection with the transfer ofEquity Shares under the Issue by the Selling Shareholders and credit ofsuch Equity Shares to the demat accounts of the Allottees
Specified Cities Cities as specified in the SEBI circular no. CIR/CFD/DIL/1/2011 datedApril 29, 2011, namely, Mumbai, Chennai, Kolkata, Delhi, Ahmedabad,Rajkot, Jaipur, Bengaluru, Hyderabad, Pune, Baroda and Surat
Syndicate Agreement The agreement to be entered into amongst the BRLMs, the SyndicateMembers, our Company and the Selling Shareholders in relation to thecollection of Bids in this Issue (excluding Bids from Bidders applyingthrough the ASBA process or Bids submitted to the Registered Brokers)
Syndicate Members []
Syndicate/ members of theSyndicate
BRLMs and the Syndicate Members
TRS/TransactionRegistration Slip
The slip or document issued by the Syndicate, or the SCSB (only ondemand), as the case may be, to the Bidder as proof of registration of theBid
Underwriters BRLMs and the Syndicate Members
Underwriting Agreement The agreement amongst the Underwriters, our Company and the Selling
Shareholders to be entered into on or after the Pricing DateWorking Days Any day, other than Saturdays and Sundays, on which commercial banks in
Mumbai are open for business, provided however, for the purpose of thetime period between the Bid/Issue Closing Date and listing of the EquityShares on the Stock Exchanges, Working Days shall mean all daysexcluding Sundays and bank holidays in Mumbai in accordance with theSEBI circular no. CIR/CFD/DIL/3/2010 dated April 22, 2010
Technical/Industry Related Terms/Abbreviations
Term Description
ACTREC The Advanced Centre for Treatment, Research and Education in Cancer
AIDS Acquired Immunodeficiency Syndrome
ANDA Abbreviated New Drug ApplicationANVISA, Brazil National Health Surveillance Agency, Brazil
http://www.sebi.gov.in/sebiwebhttp://www.sebi.gov.in/sebiweb -
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Term Description
WHO-PQ World Health Organisation Pre-Qualification
Conventional Terms/ Abbreviations
Term Description
AGM Annual general meetingAIF Alternative Investment Fund as defined in and registered with SEBI under
the Securities and Exchange Board of India (Alternative InvestmentsFunds) Regulations, 2012
AS/Accounting Standards Accounting Standards issued by the Institute of Chartered Accountants ofIndia
BSE BSE Limited
CAGR Compounded annual growth rate
CDSL Central Depository Services (India) Limited
CRISIL CRISIL Limited
CIN Corporate identity number
Client ID Client identification number of the Bidders beneficiary account
Companies Act/Act Companies Act, 1956
Depositories NSDL and CDSL
Depositories Act Depositories Act, 1996
DIN Director identification number
DoT Department of Telecommunication, Ministry of Communications andInformation Technology, Government of India
DP ID Depositoryparticipants identification
DP/Depository Participant A depository participant as defined under the Depositories Act
EBITDA Earnings before interest, tax, depreciation and amortisation
EGM Extraordinary general meeting
EPS Earnings per share
FCNR Foreign currency non-resident
FDI Foreign direct investment
FEMA Foreign Exchange Management Act, 1999 read with rules and regulationsthereunder and amendments thereto
FEMA Regulations Foreign Exchange Management (Transfer or Issue of Security by a PersonResident Outside India) Regulations, 2000
FII(s) Foreign institutional investors as defined under the Securities andExchange Board of India (Foreign Institutional Investors) Regulations,1995 and registered with SEBI under applicable laws in India
FinancialYear/Fiscal/FY/Fiscal Year
The period of 12 months ending March 31 of that particular year
FIPB Foreign Investment Promotion Board
FVCI Foreign venture capital investors as defined and registered with SEBIunder the Securities and Exchange Board of India (Foreign Venture CapitalInvestors) Regulations, 2000
GDP Gross domestic productGIR General index register
GoI/Government Government of India
HUF Hindu undivided family
ICAI Institute of Chartered Accountants of India
IFRS International Financial Reporting Standards
Income Tax Act/ I.T. Act The Income Tax Act, 1961
Indian GAAP Generally Accepted Accounting Principles in India
IPO Initial public offering
Investment Company Act United States Investment Company Act of 1940
LLP Act Limited Liability Partnership Act, 2008
MICR Magnetic ink character recognition
Mutual Funds A mutual fund registered with SEBI under the Securities and ExchangeBoard of India (Mutual Funds) Regulations, 1996
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Term Description
National Investment Fund National Investment Fund set up by resolution F. No. 2/3/2005-DD-IIdated November 23, 2005 of the GoI, published in the Gazette of India
NAV Net asset value
NCT National Capital Territory
NECS National Electronic Clearing Service
NEFT National Electronic Fund TransferNR/ Non-Resident A person resident outside India, as defined under the FEMA and includes
an NRI, FIIs registered with SEBI and FVCIs registered with SEBI
NRE Account Non resident external account
NRI A person resident outside India, who is a citizen of India or a person ofIndian origin, and shall have the meaning ascribed to such term in theForeign Exchange Management (Deposit) Regulations, 2000
NRO Account Non resident ordinary account
NSDL National Securities Depository Limited
NSE The National Stock Exchange of India Limited
OCB/Overseas CorporateBody
A company, partnership, society or other corporate body owned directly orindirectly to the extent of at least 60% by NRIs including overseas trusts, inwhich not less than 60% of beneficial interest is irrevocably held by NRIsdirectly or indirectly and which was in existence on October 3, 2003 andimmediately before such date had taken benefits under the general
permission granted to OCBs under FEMA
p.a. Per annum
P/E Ratio Price/earnings ratio
PAN Permanent account number
PAT Profit after tax
RBI Reserve Bank of India
RoNW Return on net worth
`/Rs./Rupees Indian Rupees
RTGS Real time gross settlement
SCRA Securities Contracts (Regulation) Act, 1956
SCRR Securities Contracts (Regulation) Rules, 1957SEBI The Securities and Exchange Board of India constituted under the SEBI
Act, 1992
SEBI Act Securities and Exchange Board of India Act, 1992
SEBI AIF Regulations Securities and Exchange Board of India (Alternative Investments Funds)Regulations, 2012
SEBI ESOP Guidelines Securities and Exchange Board of India (Employee Stock Option Schemeand Employee Stock Purchase Scheme) Guidelines, 1999
SEBI FII Regulations Securities and Exchange Board of India (Foreign Institutional Investors)Regulations, 1995
SEBI FVCI Regulations Securities and Exchange Board of India (Foreign Venture Capital Investor)Regulations, 2000
SEBI Regulations Securities and Exchange Board of India (Issue of Capital and DisclosureRequirements) Regulations, 2009
SEBI Takeover Regulations Securities and Exchange Board of India (Substantial Acquisition of Sharesand Takeovers) Regulations, 2011
SEBI VCF Regulations Securities and Exchange Board of India (Venture Capital Funds)Regulations, 1996
Securities Act United States Securities Act, 1933
SICA Sick Industrial Companies (Special Provisions) Act, 1985
Sq. Ft./sq. ft. Square feet
State Government The government of a State in India
Stock Exchanges BSE and NSE
UK United Kingdom
ULIP Unit Linked Insurance Plan
US/United States/USA United States of AmericaUS GAAP Generally Accepted Accounting Principles in the United States of America
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Term Description
USD/US$ United States Dollars
United States QIBs Qualified Institutional Buyers, as defined in Rule 144A under theSecurities Act
VAT Value added tax
VCFs Venture capital funds as defined in and registered with SEBI under the
SEBI VCF Regulations
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PRESENTATION OF FINANCIAL, INDUSTRY AND MARKET DATA
All references to India contained in this Draft Red Herring Prospectus are to the Republic of India and allreferences to the U.S., U.S.A or the United Statesare to the United States of America.
Financial Data
Unless stated otherwise, financial data included in this Draft Red Herring Prospectus is derived from therestated stand-alone and consolidated financial information of our Company for the Fiscals 2008, 2009,2010, 2011 and 2012 and the nine months ended December 31, 2012, prepared in accordance with theCompanies Act and restated in accordance with the SEBI Regulations. In this Draft Red HerringProspectus, any discrepancies in any table between the total and the sums of the amounts listed are due torounding off.
Our Companys financial year commences on April 1 and ends on March 31 of the next year, so allreferences to particular financial year, unless stated otherwise, are to the 12 months period ended on March31 of that year.
There are significant differences between Indian GAAP, US GAAP and IFRS. The reconciliation of thefinancial information to IFRS or US GAAP financial information has not been provided. Our Company has
not attempted to explain those differences or quantify their impact on the financial data included in thisDraft Red Herring Prospectus, and it is urged that you consult your own advisors regarding such differencesand their impact on our Companys financial data. Accordingly, the degree to which the financialinformation included in this Draft Red Herring Prospectus will provide meaningful information is entirelydependent on the readers level of familiarity with Indian accounting practices, Indian GAAP, theCompanies Act and the SEBI Regulations. Any reliance by persons not familiar with Indian accounting
practices, Indian GAAP, the Companies Act, the SEBI Regulations on the financial disclosures presented inthis Draft Red Herring Prospectus should accordingly be limited.
Unless otherwise indicated, any percentage amounts, as set forth in the sections Risk Factors, OurBusiness, Managements Discussion and Analysis of Financial Condition and Results of Operations on
pages 16, 127 and 324 respectively, and elsewhere in this Draft Red Herring Prospectus have beencalculated on the basis of the restated consolidated and stand-alone financial information prepared in
accordance with the Companies Act and restated in accordance with the SEBI Regulations.
Currency and Units of Presentation
All references to
AED are to United Arab Emirates Dirham, the official currency of United Arab Emirates.
CDN or CAD are to Canadian Dollar, the official currency of Canada;
GBP are to pound sterling, the official currency of the United Kingdom of Great Britan and NorthernIreland, together with its territories and possessions;
Naira are to Nigerian Naira, the official currency of the Federal Republic of Nigeria.
Rand are to South AfricanRand, the official currency of South Africa
Real are to Brazilian Real, the official currency of Brazil.
` or Rupees are to Indian Rupees, the official currency of the Republic of India.
SGD are to Singapore Dollar, theofficial currency of Singapore;
US$ or USD are to United States Dollars, the official currency of the United States of America.
Our Company has presented certain numerical information in this Draft Red Herring Prospectus inmillion units. One million represents 1,000,000 and one billion represents 1,000,000,000.
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Exchange Rates
This Draft Red Herring Prospectus contains conversions of certain US Dollar and other currency amountsinto Indian Rupees that have been presented solely to comply with the requirements of the SEBIRegulations. These conversions should not be construed as a representation that those US Dollar or othercurrency amounts could have been, or can be, converted into Indian Rupees at any particular conversion
rate.
The following table sets forth, for the periods indicated, information with respect to the exchange ratebetween the Rupee and various other currencies.
Currency Rate for exchange
into as on March
31, 2013
Rate for exchange
into as on
December 31, 2012
Rate for exchange
into as on March
31, 2012(3)
Rate for exchange
into as on March
31, 2011(4)
1 AED(1) 14.82 14.92 13.87 12.18
1CDN(1) 53.44 55.28 51.04 46.08
1 GBP 82.32 88.51 81.80 71.93
1 Naira(1) 0.34 0.35 0.32 0.29
1 Rand(1) 5.91 6.47 6.64 6.56
1 Real(1)
27.00 26.71 27.89 27.481 SGD
(1) 43.71 45.02 40.52 35.47
1 USD 54.39 54.78 51.16 44.65Source: (1)Bloomberg; (2)RBI(3)Latest Practicable Date: March 30, 2012(4)Latest Practicable Date: March 28, 2011
Industry and Market Data
Unless stated otherwise, industry and market data used in this Draft Red Herring Prospectus have beenobtained or derived from publicly available information as well as industry publications and sources.Industry publications generally state that information contained in those publications has been obtainedfrom sources believed to be reliable but that their accuracy and completeness are not guaranteed and theirreliability cannot be assured. Accordingly, no investment decision should be made on the basis of such
information. Although we believe that industry data used in this Draft Red Herring Prospectus is reliable, ithas not been independently verified. Such data involves risks, uncertainties and numerous assumptions andis subject to change based on various factors, including those discussed in the section Risk Factors on
page 16. Accordingly, investment decisions should not be based solely on such information.
The extent to which market and industry data used in this Draft Red Herring Prospectus is meaningfuldepends on the readers familiarity with and understanding of methodologies used in compiling such data.There are no standard data gathering methodologies in the industry in which business of our Company is
conducted, and methodologies and assumptions may vary widely among different industry sources.
In addition, certain data in relation to our Company used in this Draft Red Herring Prospectus has beenobtained or derived from reports published, or studies conducted, by IMS and CRISIL, and differs in certainrespects from our restated stand-alone and consolidated financial information as a result of, inter alia, the
methodologies used in compiling such data. Accordingly, no investment decisions should be made based onsuch information.
Definitions
For definitions, see the section Definitions and Abbreviations on page 3. In the section Main Provisionsof the Articles of Association on page 434, defined terms have the meaning given to such terms in theArticles of Association.
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FORWARD-LOOKING STATEMENTS
This Draft Red Herring Prospectus contains certain forward-looking statements. These forward-lookingstatements generally can be identified by words or phrases such as aim, anticipate, believe, expect,estimate, intend, objective, plan, project, will, will continue, will pursue or other words or
phrases of similar import. Similarly, statements that describe our strategies, objectives, plans or goals are
also forward-looking statements. All forward-looking statements are subject to risks, uncertainties andassumptions about us that could cause actual results to differ materially from those contemplated by the
relevant forward-looking statement.
Certain important factors that could cause actual results to differ materially from our expectations include,
but are not limited to, the following:
significant portion of our total income is being generated by certain therapeutic areas;
manufacturing or quality control problems;
compliance with regulations prescribed by the government and regulatory agencies;
exposure to government price controls;
increase in competition in the pharmaceutical industry; and
changes in technology.
For further discussion on factors that could cause actual results to differ from expectations, see the sectionsRisk Factors, Our Business and Managements Discussion and Analysis of Financial Condition andResults of Operations on pages 16, 127 and 324, respectively. By their nature, certain market riskdisclosures are only estimates and could be materially different from what actually occurs in the future. Asa result, actual gains or losses could materially differ from those that have been estimated.
Forward-looking statements reflect current views as of the date of this Draft Red Herring Prospectus andare not a guarantee of future performance. These statements are based on the managements beliefs andassumptions, which in turn are based on currently available information. Although we believe theassumptions upon which these forward-looking statements are based are reasonable, any of theseassumptions could prove to be inaccurate, and the forward-looking statements based on these assumptionscould be incorrect. Neither our Company, the Selling Shareholders, the Directors, the BRLMs nor any oftheir respective affiliates have any obligation to update or otherwise revise any statements reflectingcircumstances arising after the date hereof or to reflect the occurrence of underlying events, even if theunderlying assumptions do not come to fruition. Our Company and the Selling Shareholders will ensure thatthe investors in India are informed of material developments until the time of the grant of listing and trading
permission by the Stock Exchanges.
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SECTION II: RISK FACTORS
An investment in the Equity Shares involves a high degree of risk. You should carefully consider all
information in this Draft Red Herring Prospectus, including the risks and uncertainties described below,before making an investment in the Equity Shares. If any or some combination of the following risksactually occur, our business, prospects, results of operations and financial condition could suffer, the
trading price of the Equity Shares could decline and you may lose all or part of your investment. Investorsin the Equity Shares should pay particular attention to the fact that we are subject to extensive regulatoryenvironment that may differ significantly from one jurisdiction to other.
We have described the risks and uncertainties that our management believes are material, but these risksand uncertainties may not be the only ones we face. Some risks may be unknown to us and other risks,currently believed to be immaterial, could be or become material. To obtain a complete understanding ofour business, you should read this section in conjunction with the sections Our Business,Managements Discussion and Analysis of Financial Condition and Results of Operations and
Financial Statements on pages 127, 324 and 184, respectively.
This Draft Red Herring Prospectus also contains forward-looking statements, which refer to future eventsthat involve known and unknown risks, uncertainties and other factors, many of which are beyond our
control, which may cause the actual results to be materially different from those expressed or implied by theforward-looking statements. See Forward-Looking Statements on page 15. Unless specified or quantifiedin the relevant risk factors below, we are not in a position to quantify the financial or other implications ofany of the risks described in this section. Unless otherwise stated, the financial information used in this
section is derived from our restated consolidated financial information prepared in accordance with theCompanies Act and restated in accordance with the SEBI Regulation.
Internal Risk Factors
1. There are outstanding criminal proceedings against our Company, Managing Di rector andcertain Di rectors and employees.
There are certain criminal proceedings pending against our Company, our Companys Managing
Director and certain Directors and employees in relation to inter alia violation of certainprovisions of the Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945,misappropriation with regard to payment of insurance amount and alleged unfair labour practices.For further details in relation to the aforesaid proceedings, see the section Outstanding Litigationand Material Developments - Litigation involving our Company Litigation against our Company
Criminal Cases on page 351.
An adverse outcome in such could have an adverse effect on the ability of our Directors andemployees, who are involved in the above proceedings, to serve our Company, which may have anadverse effect on our business, prospects, financial condition and results of operations. Further, anadverse outcome may have an adverse effect on our reputation. We cannot assure you that these
proceedings will be decided in favour of our Company or our Directors and employees involvedtherein.
2. Certain therapeutic areas generate a sign if icant porti on of our total r evenue, and our business,prospects, resul ts of operations and f inancial conditi on may be adversely af fected if products in
these therapeuti c areas do not perf orm as expected or if competing products become available
and gain wider mar ket acceptance.
We generate a significant portion of our total revenue in India from the sale of products in certaintherapeutic areas, such as cardiology, gynecology and anti-infectives. According to IMS, for the12-months ended March 2013, on a moving annual total basis, the cardiology, gynecology andanti-infectives therapeutic areas contributed 22.7%, 18.1%, and 14.0%, respectively, of our totalsales of domestic pharmaceutical products. Our revenues from these therapeutic areas may declineas a result of increased competition, regulatory action, pricing pressures or fluctuations in thedemand for or supply of our products. Similarly, in the event of any breakthroughs in the
development of alternative drugs for these therapeutic areas, our products may become obsolete orbe substituted by such alternatives. Our failure to effectively react to these situations or to
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successfully introduce new products in these therapeutic areas, could adversely affect our business,prospects, results of operations and financial condition.
3. Any manuf acturing or quali ty control problems may damage our reputation for high qual ityproducts and expose us to litigation or other liabilities, which could adversely affect our
fi nancial resul ts.
Pharmaceutical manufacturers are subject to significant regulatory scrutiny in many jurisdictions.We own and operate manufacturing facilities in India and the United States and must register, andmanufacture products in, these facilities in accordance with current good manufacturing practices(cGMP) stipulated by the USFDA, UK-MHRA, WHO, Pharmaceuticals and Medical DevicesAgency, Japan (PMDA Japan) the Central Drugs Standard Control Organization of India(CDSCO) and other regulatory agencies. We are also required to meet various quality standardsand specifications for our customers under our supply contracts. Furthermore, we are liable for thequality of our products for the entire duration of the shelf life of the product. After our productsreach the market, certain developments could adversely affect demand for our products, includingthe re-review of products that are already marketed, new scientific information, greater scrutiny inadvertising and promotion, the discovery of previously unknown side effects or the recall or loss ofapproval of products that we manufacture, market or sell.
We have, in the past, faced the recall of two products that we manufactured for otherpharmaceutical companies, Albon Bolus, a bacterial infection drug for animals and Lisinopril, adrug that treats hypertension, congestive heart failure and heart attacks which resulted in us havingto stop production of these products for a certain period pending investigation. While, pursuant toinvestigations by us and our customer, no fault was attributable to us or our manufacturing
practices, there can be no assurance that there will not be any recalls of any of our products orinvestigations of our manufacturing facilities or our processes in the future.
Disputes over non-conformity of our products with such quality standards or specifications aregenerally referred to independent testing laboratories, which generally, or unless the contractspecifies, the customer, makes a final decision. If any independent laboratory confirms that our
products do not conform to the prescribed or agreed standards and specifications, we would bear
the expenses of replacing and testing such products, which could adversely affect our business,results of operations and financial condition.
We also face the risk of loss resulting from, and the adverse publicity associated with,manufacturing or quality control problems. Such adverse publicity harms the brand image of our
products. We may be subject to claims resulting from manufacturing defects or negligence instorage and handling of our pharmaceutical products. In certain foreign jurisdictions, the quantumof damages, especially punitive, awarded in cases of product liability can be extremely high. Theexistence, or even threat, of a major product liability claim could also damage our reputation andaffect consumers views of our other products, thereby adversely affecting our business, results ofoperations and financial condition. Any loss of our reputation or brand image, for whatsoeverreason may lead to a loss of existing business contracts and adversely affect our ability to enterinto additional business contracts in the future.
4. Any delay in production at, or shutdown of, any of our manufacturing facil iti es or at any of thethird party manufacturing facilities we use, could adversely affect our business, results of
operations and financial condition.
The success of our manufacturing activities depends on, among other things, the productivity ofour workforce, compliance with regulatory requirements and the continued functioning of ourmanufacturing processes and machinery. Disruptions in our manufacturing activities could delay
production or require us to shutdown the affected manufacturing facility. Moreover, some of ourproducts are permitted to be manufactured at only such facility which has received specificapprovals, and any shut down of such facility will result in us being unable to manufacture such
product for the duration of such shut down. Such an event will result in us being unable to meetwith our contractual commitments, which will have an adverse effect on our business, results ofoperation and financial condition.
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Any disagreements with our trade union could disrupt our workforce and adversely affect ourbusiness, financial condition and results of operations. We may also be subject to manufacturingdisruptions due to delays in receiving regulatory approvals, which may require our manufacturingfacilities to cease or limit production until the required approvals are received, or disputesconcerning these approvals are resolved. Moreover, because regulatory approvals formanufacturing drugs are site-specific, production cannot be transferred to another location which
could adversely affect our business, results of operations and financial condition.
Any interruption at our manufacturing facilities, including natural or man-made disasters,workforce disruptions, regulatory approval delays, fire or the failure of machinery, could reduceour ability to meet the conditions of our contracts and earnings for the affected period, which couldaffect our business, prospects, results of operations and financial condition.
Additionally, we rely on certain third party contract manufacturers for the supply of certainproducts. In the event that there are disruptions in the manufacturing facilities of such third partycontract manufacturers, it will impact our ability to deliver such products and meet with ourcontractual commitments. Additionally, the use of third party contract manufacturers are subject tocertain risks, such as our inability to monitor the quality, safety and manufacturing processes on acontinual basis at such third party manufacturing facilities. As a result, there can be no assurance
that we will be able to maintain high quality standards in respect of the products that such thirdparty contractors provide us. If these third party manufacturing facilities cease to be available to usat costs acceptable to us or we experience problems with, or interruptions in, such services, and weare unable to find other facilities to provide similar manufacturing capacity on comparable termsand on a timely basis, our operations would be disrupted and our financial condition and results ofoperations could be adversely affected.
5. We are susceptibl e to product l iabi li ty claims that may not be covered by insurance whi ch mayrequi re substantial expendi tur e and may adversely af fect our r eputati on and i f successful , could
requi re us to pay substantial sums.
We face the risk of loss resulting from, and the adverse publicity associated with, product liabilitylawsuits especially in the United States and Europe, whether or not such claims are valid. We may
also be subject to claims resulting from manufacturing defects or negligence in storage or handlingwhich may lead to the deterioration of our products. For example, our products sold by ourdistributors may have expired or may cause side effect to consumers. Even unsuccessful productliability claims would likely require us to incur substantial amounts on litigation, divertmanagements time, adversely affect our goodwill and impair the marketability of our products. Inaddition, we cannot be certain that our product liability insurance will, in fact, be sufficient tocover such claims or our policy limits will be sufficient to cover such claims or that we will be ableto maintain adequate insurance coverage in the future at acceptable costs. Further, we may nothave taken insurance or may not have vendor extension covers from our partners insurance
policies in the countries into which we export our products. A successful product liability claimthat is excluded from coverage or exceeds our policy limits may require us to pay substantial sumsand may adversely affect our financial position and results of operations. In addition, insurancecoverage for product liability may become prohibitively expensive in the future. From time to
time, the pharmaceutical industry has experienced difficulty in obtaining desired product liabilityinsurance coverage.
We currently export and in the future intend to increase our export of products to the United States,a market noted for its litigious nature and high awards of damages. A deterioration in our qualitycontrols could also result in product liability claims against us. The risk of product liability suits isalso likely to increase as we develop our own new patented products in addition to making genericversions of drugs that have been in the market for some time. While we have a global productliability insurance policy for products sold by us, if any product liability claim not covered byinsurance or exceeding the policy limits were sustained against us, it could adversely affect our
business, financial condition and results of operations.
6. We are subject to the ri sk of loss due to fi re because the mater ial s we use in our manufacturi ngprocesses are highl y fl ammable. We are also subject to the risk of some other natural calami ties
or general disruptions aff ecting our production facil iti es and distri bution chain .
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We use highly flammable materials such as acetone, ethanol, methanol and toluene in ourmanufacturing processes and are therefore subject to the risk of loss arising from fire. Although wehave implemented industry acceptable risk management controls at our manufacturing locationsand continuously seek to upgrade them, the risk of fire associated with these materials cannot becompletely eliminated. In the past, we have had minor interruptions in production as a result offire. In addition to fire, natural calamities such as floods, earthquakes, rains, inundations and heavy
downpours could disrupt our manufacturing and storage facilities. We maintain insurance policiesto guard against losses caused by fire, and, for Emcure USA, insurance against loss of profit. Ourinsurance coverage for damages to our properties and disruption of our business due to theseevents may not be sufficient to cover all of our potential losses. If any of our manufacturingfacilities were to be damaged as a result of fire or other natural calamities, it would temporarilyreduce our manufacturing capacity and adversely affect our business operations, financialcondition and results of operations.
7. I f we fai l to comply with regulations prescri bed by governments and regulatory agencies, ourbusiness, resul ts of operati ons and financi al condi tion coul d be adversely af fected.
We operate in a highly regulated industry, and our operations are subject to extensive regulation ineach market in which we do business. Regulatory authorities in many of these markets must
approve our products before we or our distribution agents can market them, irrespective of whetherthese products are approved in India or other markets. Applicable regulations have becomeincreasingly stringent, a trend which may continue in the future. The penalties for non-compliancewith these regulations can be severe, including the revocation or suspension of our business licenseand the imposition of fines and criminal sanctions in those jurisdictions.
We have ongoing duties to regulatory authorities, such as the CDSCO and the USFDA, bothbefore and after a products commercial release. Regulatory agencies may at any time reassess ourmanufacturing facilities or the efficacy of our products based on newly developed scientificknowledge or other factors. For example, our facilities and products are subject to auditing
processes by various regulators, including the USFDA. If such audits or other reassessments resultin warnings or sanctions, the relevant regulator may amend or withdraw our existing approvals tomanufacture and market our products in such relevant jurisdiction, which could adversely affect
our business, financial condition and results of operations.
If we fail to comply with applicable statutory or regulatory requirements, there could be a delay inthe submission or grant of approval for marketing new products. Moreover, if we fail to complywith the various conditions attached to such approvals, licenses, registrations and permissions oncereceived, the relevant regulatory body may suspend, curtail or revoke our ability to market such
products. In the United States, India, and many of the international markets in which we sell ourproducts, the approval process for a new product is complex, lengthy and expensive. The timetaken to obtain approvals varies by country but generally takes between six months and severalyears from the date of application. If we fail to obtain such approvals, licenses, registrations and
permissions, in a timely manner or at all, our business, results of operations and financial conditioncould be adversely affected.
We are also subject to a broad range of safety, health, environmental, labor, workplace and relatedlaws and regulations in the jurisdictions in which we operate, which impose controls on thedisposal and storage of raw materials, noise emissions, air and water discharges, on the storage,handling, discharge and disposal of chemicals, employee exposure to hazardous substances andother aspects of our operations. For example, local laws in India limit the amount of hazardous and
pollutant discharge that our manufacturing facilities may release into the air and water. Thedischarge of raw materials that are chemical in nature or of other hazardous substances into the air,soil or water beyond these limits may cause us to be liable to regulatory bodies or third parties. Inaddition, we may be required to incur costs to remedy the damage caused by such discharges, payfines or other penalties for non-compliance. Complying with, and changes in, these laws andregulations may increase our compliance costs and adversely affect our business, prospects, resultsof operations and financial condition.
We are also subject to the laws and regulations governing relationships with employees in suchareas as minimum wage and maximum working hours, overtime, working conditions, hiring and
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termination of employees, contract labor and work permits. Our business is also subject to, amongother things, the receipt of all required licenses, permits and authorizations including local land use
permits, manufacturing permits, building and zoning permits, and environmental, health and safetypermits. Changes or concessions required by regulatory authorities could also involve significantcosts and delays which could adversely affect our financial condition and results of operation.
In countries where we have limited experience, we are subject to additional risks related tocomplying with a wide variety of local laws, including restrictions on the import and export ofcertain intermediates, drugs, technologies and multiple and possibly overlapping tax structures.Further, regulatory requirements are still evolving in many markets and are subject to change andas a result may, at times, be unclear or inconsistent. Consequently, there is increased risk that wemay inadvertently fail to comply with such regulations, which could lead to enforced shutdownsand other sanctions imposed by the relevant authorities, as well as the withholding or delay inreceipt of regulatory approvals for our new products.
8. We deri ve a sign if icant porti on of our revenue fr om a few customers and a loss of one or moresuch signi f icant customers or a reduction i n their demand for products could adversely af fect
our business, f inancial condition and resul ts of operations.
We are dependent on a limited number of customers for a significant portion of our income. Forexample, for the nine months ended December 31, 2012 and the Fiscal 2012, our top 10 customerscontributed, 28.1% and 34.2%, respectively, of our total revenue. Additionally, one of ourcustomers contributed 18.0% and 25.0%, respectively, of our total revenue for the nine monthsended December 31, 2012 and the Fiscal 2012. The loss of one or more of these significantcustomers or a reduction in the amount of business we obtain from them could have an adverseeffect on our business, financial condition and results of operations. We cannot assure you that wewill be able to maintain historic levels of business from our significant customers or that we will
be able to significantly reduce customer concentration in the future.
9. We have historically derived a substantial portion of our revenue fr om the Domestic M arket andthe Regulated Markets.
During the nine months ended December 31, 2012 and the Fiscal 2012, we derived a significantpercentage of our revenue from the Domestic Market and the Regulated Markets. For example, wederived 54.7% and 48.4% of our revenue from operations (net) from the Domestic Market for thenine months ended December 31, 2012 and the Fiscal 2012, respectively, and we derived 38.3%and 42.7% of our revenue from operations (net) from the Regulated Marketsfor the nine monthsended December 31, 2012 and the Fiscal 2012, respectively. We are well positioned in theDomestic Market and we intend to increase our presence in the Regulated Market, especially theUnited States through our Companys Subsidiary, Heritage Pharmaceuticals Inc. (Heritage). Wewill continue to evaluate initiatives and strategies to increase our presence in the Domestic Marketand the Regulated Markets.
We cannot assure you that we will be able to continue to generate a significant portion of ourrevenue from these markets. Any failure to do so may adversely affect our business, financial
condition and results of operations.
10. Our Company has all otted Equity Shares to its exi sting resident and non-resident shareholderson April 19, 2013 pursuant to a rights issue (the Rights Issue). In this regard, our Company
has received a letter dated June 11, 2013 from the RBI (the RBI Letter) requiring our
Company for a copy of the Government approval. Our Company has responded to the same
indicating the rationale for not obtaini ng prior Government approval for the Rights Issue. I n
the event, such all otment is considered non-compl ian t with the foreign exchange laws, our
Company may be subject to regulatory actions including imposition of penalties by the
regulators.
In terms of the Consolidated FDI Policy dated April 5, 2013 (the FDI Policy), the Press Note 3of 2011 dated November 8, 2011 issued by the Department of Industrial Policy and Promotion,Ministry of Commerce and Industry, Government of India, and the circular dated December 9,2011 notified by the RBI, foreign direct investment in the pharmaceutical sector up to 100% under
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the Government approval route is permitted for brownfield investment, i.e. investment in existingpharmaceutical companies. With respect to a rights issue, the FDI Policy allows Indian companiesto freely issue shares on rights basis to existing non-resident shareholders subject to adherence tosectoral cap, if any. However, such shares on rights basis should be offered to the non-residentshareholders at a price not less than the price at which such shares are offered to the residentshareholders.
Our Company had allotted an aggregate of 10,047,340 Equity Shares to its existing shareholders,including 1,574,306 Equity Shares to its non-resident shareholders, in the Rights Issue. Pursuant tothe said Rights Issue, whilst the quantum of holding of our existing non-resident shareholders hadchanged, there was no change in the percentage shareholding of such non-resident shareholders. Interms of the FDI Policy, our Company believed that it could freely issue Equity Shares to its non-resident shareholders pursuant to the Rights Issue without applying to the Government forapproval. In this regard, our Company has received the RBI Letter dated June 11, 2013 seekingdocuments/clarifications, inter alia, the Government approval for such Rights Issue. Our Companyhas replied to the RBI videits letter dated June 24, 2013 setting out the rationale for undertakingthe Rights Issue without obtaining prior Government approval. In the event the RBI so desires, wewill approach the FIPB for post facto approval for the Rights Issue. There is a possibility that thegovernment authorities, including the FIPB, may not grant the post-facto approval or take a
contrary view and consider such allotment of Equity Shares non-compliant with the FDI Policyand other foreign exchange laws. The regulatory authorities, including RBI, have broad powers todeal with any such non-compliance, including (without limitation), the power to impose amonetary penalty of up to three times the sum involved in the non-compliance, if quantifiable, andtake such other actions or issue directions as it may deem appropriate.
11. Our inabili ty to attract partners who are looking to us for co-development, outsourcing andli censing in the futur e could adversely af fect our market share. I f the covenants in our
agreements with such partners are onerous or commercial ly restr icti ve, our r esul ts of operations
and financi al condit ion coul d be adversely aff ected.
Multi-national corporations have outsourced an increasingly higher share of the manufacturingprocess for pharmaceutical products and APIs. These corporations generally look to enter into
outsourcing arrangements with reputed companies that can produce high quality products at lowercosts, while adhering to cGMP for the Regulated Markets. In the course of our business, we enterinto supply and license agreements with various pharmaceutical companies.
To continue to attract partners for our contract manufacturing, we must maintain our position andcontinue to improve our reputation for contract manufacturing and research and development. Ifwe cannot maintain our current position in the market, we may not be able to attract partners toenter into supply agreements with us and we may lose market share in this business area, whichwill consequently affect our business, results of operations and financial condition. Additionally,certain of our contract manufacturing agreements contain covenants that may be onerous andcommercially restrictive in nature, including covenants that:
impose penalties for an event of default as a result of failing to meet with certain
requirements; and
allow them the right to terminate the agreement in the event of a change of control.
Multi-national corporations also look to enter into marketing arrangements with reputed Indiancompanies that have a significant marketing presence and distribution network in India. Similarly,companies that do not have a marketing presence in the United States look for partners to sell their
products in the United States. There can be no assurance that we will be able to enter into suchmarketing agreements with such multi-national corporations or that we will be able to attract such
partners to enter into marketing agreements with us for the Indian and the United States markets.
Additionally, a number of our distribution and supply agreements contain covenants that may beonerous and commercially restrictive in nature, including covenants that:
restrict our ability to manufacture, sell and market certain products in certain territories;
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require us to pay royalties to manufacture and sell certain products;
provide for preferential treatment in manufacturing products for certain of our partners;and
require us to provide additional supply up to certain limits which may require us to
maintain capacity margin.
Violating any of these covenants may result in events of default, which may result in breach ofcontract, claims against us or termination of the contracts, any of which could adversely affect our
business, results of operations and financial condition.
12. I f we do not maintain and increase the number of our arrangements for the distri bution of ourproducts, our business, resul ts of operations and f inancial conditi on could be adversely af fected.
In most of the markets in which we have a presence, we generally appoint a local third party entitywho imports, registers and distributes our products. We have limited control over the operationsand businesses of such local third party entities. Our reliance on, and inability to control, our localmanufacturers and local sale, marketing and distribution agents could adversely affect our
business, financial condition and results of operations.
We may not be able to find suitable partners or successfully enter into arrangements oncommercially reasonable terms or at all. Additionally, our distribution partners may makeimportant marketing and other commercial decisions concerning our products without our input.As a result of these arrangements, many of the variables that may affect our business, are notexclusively within our control.
Moreover, we retain some of our partners and distributors on a non-exclusive basis, which allowsthem to engage with our competitors. We also compete for partners with other leading
pharmaceutical companies that may have more visibility, greater brand recognition and financialresources, and a broader product portfolio than we do. If our competitors provide greaterincentives to our partners, our partners may choose to promote the products of our competitorsinstead of our products. Our dependence on distribution partnerships to market some of our
products may subject us to a number of risks, including:
not being able to control the amount and timing of resources that our partners may devoteto the marketing of our products;
our partners marketing our products outside their designated territory, possibly inviolation of the exclusive distribution rights of other distributors;
financial difficulties; and
significant changes in a partners business strategy that may adversely affect its
willingness or ability to fulfill its obligations under any arrangement.
13. Certain approvals for marketing or manufacturing our products in certain jur isdictions havenot been obtained in our name nor in the name of our Subsidiaries. I f the parti es that hold such
approvals default in complying wi th the terms of such approvals and, as a resul t, we are unable
to market our products in those countr ies, it would have an adverse effect on our business,
fi nancial condition and r esults of operati ons.
The local laws in certain countries impose restrictions on the grant of product registrations andmanufacturing licenses to foreign entities. These laws compel us to enter into agreements withlocal distributors or manufacturers in order to apply for and obtain these registrations and licensesin their name. If the parties that hold such approvals default in complying with the terms of suchapprovals and, as a result, we are unable to market or manufacture our products in those countries,
it would have an adverse effect on our business, financial condition and results of operations.
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14. Our resul ts of operations are subject to ri sks arising f rom exchange rate fluctuations.
Although our Companys reportingcurrency is Indian Rupees, we transact a significant portion ofour business in several other currencies. Revenues attributable to sales outside India was `6,813.49 million and represented 45.3% of our revenue from operations (net) for the nine monthsended December 31, 2012. Substantially all of our non-Indian revenue is denominated in foreign
currencies, primarily United States Dollars and Euros. Additionally, we also procure a significantportion of our raw material requirements outside India and, as a result, incur such costs incurrencies other than Indian Ru