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Cipla Ltd is set to play a bigger role in the domestic market. In the last five years, the company has invested nearly Rs 3,000 crore in capacity expansion, the most among its peers to create India's biggest manufacturing set-up. This gives Cipla the ability to scale up its operations rapidly by making small incremental investments in sales, distribution and marketing.
This could prove decisive for the company once growth in the domestic pharma market picks up. A strong manufacturing print in India will also help the company grow aggressively in the export market.
Cipla recently spent Rs 270 crore to buy an office space in Peninsula Business Park in Lower Parel, Mumbai, for its new headquarters. Besides, it plans to spend Rs 400 crore in FY14 to scale its active pharma ingredients (API) plants and product development.
"In 1995, exports accounted for just 10 per cent of our revenue. Today, that ratio is 55 per cent in favour of exports. In the next two-three years, overseas markets will likely account for 80 per cent of our revenues," said Y K Hamied, managing director, Cipla, in a recent interview. "All of our factories are export-oriented. However, all foreign countries demand to set up facilities at their own countries," he said while explaining the company's expansion plans.
Cipla's bid to acquire majority control in its South Africa joint venture, Cipla Medpro, is a step in the same direction. Cipla Medpro is among top five pharma companies in that region and Hamied can leverage the company's network in Africa to become among top pharma companies in the continent. Last month, Cipla had sweetened its offer by 17 per cent to take full ownership of Cipla Medpro.
In all, it will spend about $250 million (Rs 1,300 crore), or 10 rand a share. The offer was 8.55 rand a share in November 2012. Spending the money won't be a stretch given Cipla's free cash flows of around Rs 1,000 crore in FY13.
"The proposed acquisition will strengthen its market position, help in expanding local manufacturing capacity, and expand into other African markets," said a report from HDFC Securities.
Strengthening the presence in Japan and Europe is another priority for Cipla in FY14. Japan is the second largest pharma market in the world in terms of value. "We are entering into an alliance with Japanese companies to sell our products there," Hamied said. Also, Cipla is set to tap the European inhaler market with generic drug launches. The company has a pipeline of 11 products for the European market.
The company is well positioned to scale up exports given its Rs 900-crore investment at its Indore special economic zone. The facility is likely to clock sales of Rs 550 crore in FY13E and Rs 900 crore by FY15, say analysts. The unit has already been approved by US Food and Drug Administration.
Ajay Luharuka, head-treasury at CIpla, said: "We are expanding our API manufacturing capacities in Bangalore, Kurkumbh and Patalganga, essentially for backward integrating our raw material requirements. These API facilities are expected to be ready for commercial production this year."
The company is also eyeing the Chinese market. "Cipla is planning new joint ventures and even acquisitions in key emerging markets like Turkey, Morocco, Brazil and Nigeria," says a recent report by First Call Research.
