Ranbaxy owns 11 per cent in small cap drugmaker Krebs.

Mumbai-based Ipca Laboratories Ltd, which manufactures active pharmaceutical ingredients (APIs) and finished dosage forms, has picked close to 19 per cent stake in Krebs Biochemicals & Industries Ltd from its promoters early this week and is now hiking it further to around 30 per cent through a preferential allotment. Ipca picked 18.92 per cent stake in Krebs for Rs 9.54 crore (over $1.5 million) through an off market transaction. It is now participating in a preferential allotment worth Rs 12.4 crore ($2 million) to raise its holding.

A member of Krebs' promoter group is simultaneously putting in around Rs 7.2 crore as part of a larger preferential allotment, the firm disclosed on Friday. On a diluted equity base, Ipca would hold 30 per cent stake. This has triggered an open offer to buy up to 26 per cent more in Krebs. Depending on the acceptance ratio in the tender offer, Ipca could end up shelling as much as Rs 19.3 crore to hike its holding to get a majority stake.

The open offer has been made at Rs 54 a share, a discount of over 27 per cent to the last traded market price of Krebs. This could mean the open offer may not find too many takers. But, to be fair, the company's scrip has almost doubled in value over the last one week. This signals the investors already had a good idea of the impending deal. E-mails sent to Premchand Godha, chairman & MD of Ipca Laboratories and Avinash Ravi, COO of Krebs Biochemicals for more details did not elicit in any response.

Headquartered in Hyderabad since 1991 Krebs is a biochemical company with two manufacturing plants in Nellore and Vizag. As per its website, Nellore unit is approved by US FDA. It has not been generating any income from operations in the recent past. For the quarter ended December 31, 2014 it had net loss of Rs 1.4 crore on zero revenues. Daiichi Sankyo-controlled Ranbaxy, which is awaiting final go-ahead to merge with Sun Pharma, owns 11 per cent in Krebs. This holding will shrink to 7.6 per cent post the proposed preferential allotment.

For Ipca, this marks a continuation of its strategy of small deals in the pharma space. It has been sewing one such deal a year. Last October it bought a manufacturing unit for high potency oral solid dosage owned by Alpa Laboratories Ltd located at Pithampur, Indore, for Rs 71.71 crore ($12 million). In November 2013 it bought 50 per cent stake in Gujarat-based Avik Pharmaceuticals Ltd for Rs 6.51 crore (around $1.04 million). Previously it had struck some small size acquisitions overseas such as UK-based Onyx and a formulation product dossier registration-cum-distribution company in Australia.

Most importantly, the proposed deal would possibly bring under its fold a US FDA approved unit at Nellore, which it can use to ship products to the world's largest drug market. It has been battling regulator challenges starting with an inspection observation by US FDA in mid-2014 leading to an import alert from its Ratlam unit.

Ipca counts among its shareholders ChrysCap, Khazanah and SAIF Partners. For the year ended March 31, 2014, it had revenues of Rs 3,281.7 crore with net profit of Rs 478.5 crore.