Nilesh Gupta, the 36-year-old son of Lupin promoter Desh Bandhu Gupta, and the pharma company’s group president and director, does not take time to answer most questions.
That’s till you ask him if the company would sell its domestic formulations business, that has a turnover of Rs 1,200 crore, if a multinational was willing to pay Rs 12,000 crore.
Gupta thinks over it for the next 30 seconds before he replies. “Who knows? It is a huge (amount of) money and its interest from a bank may be more than the profits one can generate from the business in a year. But, my answer is No. At least for the time being, we will not sell,” he says, with a smile.
Lupin, which generates almost 60 per cent of its $1-billion (Rs 4,600 crore) revenue from overseas sales, cannot think of a business sans the home turf, he reasons.
WERE THEY RIGHT?
The sellout of two most unlikely candidates — Ranbaxy Laboratories and Piramal Healthcare’s domestic formulations business — to multinational drug makers has now stirred up the same question in the board rooms of many Indian pharmaceutical companies.
A nine-times valuation for Piramal Healthcare’s Rs 2,000-crore domestic business that dwarfed the much-hailed Ranbaxy deal has created a ‘Why not sell?’ sense even among the most passionate of first generation pharmaceutical entrepreneurs. In the past, the same promoters had refused to sell and often said they loved their businesses as much as they loved their sons and daughters.
Now, they are accepting the new reality. “It is a time of consolidation in the domestic market and now we will have to compete more with quality products and work ethics of multinationals,” says the soft-spoken Dilip Shanghvi, chairman and managing director of Sun Pharmaceutical Industries. Sanghvi, like many Indian promoters, has been embroiled in legal battles with foreign companies over control of overseas companies and sale of Made-in-India drugs.
He, however, maintains the increasing multinational (MNC) presence is unlikely to threaten the market share and growth of domestic players such as Sun Pharma.
“If a multinational company reduces the price of a drug from Rs 200 to Rs 150, it will not impact a generic player who is selling the generic of that drug at a price of Rs 30,” Shanghvi told analysts on Monday, two days after the Abbott-Piramal deal was announced.
EAGER, DETERMINED MNCs
From a meagre 17 per cent market share two years earlier, MNCs have cornered over 25 per cent of the domestic pie. If only a couple of MNCs were earlier present in the top 10 domestic rankings, now at least three companies have found their way into the top five, largely driven by acquisitions. Analysts say in the near future, MNCs are only going to strengthen their grip over the domestic drug market.
“All major global players are talking to various Indian companies and more buyouts are sure to happen in the near future,” says Nimish Mehtha of MP Advisors, which orchestrated the Daiichi Sankyo-Ranbaxy deal.
The world’s largest drug maker, Pfizer, which aborted plans to acquire Ratiopharm of Germany, is desperate to buy a large generic company and will look at acquiring companies such as Cipla, Dr Reddy’s Laboratories, Aurobindo, Strides Arcolab, Torrent Pharma or the remaining businesses of Orchid, say analysts.
Similarly, the world’s second largest drug company, GlaxoSmithKline, which was among the top three players in the domestic market for a long time, will now try for a major buyout in India to regain its top slot. And, almost all the top 20 global drug companies are desperate to make a major presence in India, one of the fastest-growing drug markets in the world, the analysts said. “India and China will account for over 40 per cent of global population and both countries are growing to become superpowers, with high disposable income. Global drug companies will not be able to ignore India or China in future,” said Ranjit Kapadia, vice-president, institutional research, with HDFC Securities.
Piramal Healthcare’s deal with Abbott also sets a new benchmark for all future deals that are waiting to happen, says a top executive of a Hyderabad-based company, who did not wish to be quoted. He noted that such big offers are irresistible for large generic companies with extensive domestic footprint, as consistent high growth from a larger base is difficult.
R C Juneja, managing director of Mankind Pharma, also feels the Piramal deal will set a new benchmark for valuations of companies in India. “It shows that multinational firms recognise the robustness of Indian pharma business and are willing to pay the money we demand,” he said.
MONEY ISN’T ALL, FOR NOW
And, Juneja quickly adds that he is not in a mood to sell his company, now one among the top 10 domestic players. “I do not want 15 years of hard work to be just traded for money. Those who sell their businesses have some other areas of interest, but I am completely focused on pharma,” he said.
Such a lack of non-pharma ambitions of promoters were a major deterrent in concluding deals in the past. Most of the leading Indian drug companies are still run by pharmacists/scientists-turned-first generation entrepreneurs, who attach more value and passion to their companies than the money offered by willing suitors. “We were approached by many, but were never interested,” reveals Gupta, adding. “After all, I was born into Lupin.”
Entrepreneurs like Nilesh and Juneja are considering the idea of strategic joint ventures with MNCs, rather than selling all or part of businesses to them. “I will definitely like to be part of a joint venture with a foreign MNC if it is a win-win situation,” said Juneja. But, market players take it with a pinch of salt. “Till they sold their ventures, (Piramal Healthcare’s) Ajay Piramal and (Ranbaxy’s) Malvinder and Shivinder Sigh often spoke in the same tone,” says a pharma sector analyst.
