"Further relaxation of FDI norms in the pharma sector is a good move, as it eases the process of M&A in the sector," Angel Broking vice-president for research in pharma, Sarbjit Kour Nangra told IANS.
"As the M&A activity depends on the valuations that are agreeable to Indian promoters and foreign companies, I am not sure if it would increase the M&A activity in a major way," she said.
On Monday, the Union government relaxed FDI norms further in key sectors, including pharmaceuticals, by allowing equity up to 74 per cent under the automatic route for existing projects.
The phrama sector was already opened up for 100 per cent FDI under automatic route in greenfield projects and government-approved brownfield projects.
"We need to see the fine print. Mostly the move would benefit companies in the formulations segment than those in the bulk drug space. Some Indian pharma companies were looking at raising funds from QIP (Qualified Institutional Placement) issue. The move may ease the process of raising funds," said Siddhant Khandekar, Senior Research Analyst, ICICI Securities.
Terming the move a long-awaited reform, Biocon chairperson Kiran Mazumdar Shaw said as a flagship sector, the pharma industry was in dire need of capital investment.
"As the pharma sector is a very capital intensive sector, I think this move augurs very well because you need to have investment. As Indian companies are not able to invest themselves, FDI is very welcome to do this, scaling up," Shaw told IANS.
Asked if Biocon would invite FDI, Shaw said though the company does not need FDI right now, many India pharma companies could do with FDI because India was part of the global economy, especially its pharma sector, as 75-80 per cent of the production was exported.
"The timing couldn't be better, with (RBI governor) Raghuram Rajan's exit because we need some good news to balance the bad news," she said.
Khaitan and Co associate partner Sameer Sah said as global players looking at establishing a presence in India would prefer having local partners, the new policy would facilitate those deals.
"A sticky issue for M&A deals has been the non-compete issue as non-compete proposals were not permitted without approval. The official statement is silent, but one would hope that every aspect of the deal, including non-compete clauses, should be under the automatic route so long as the investment is 74 percent or below," Khaitan's other partner Rajat Mukherjee said in a statement.
Noting that the Indian pharma sector was witnessing heightened activity in the recent past, BMR & Associates LLPO partner Kalpesh Maroo said liberalised FDI in brownfield projects would help in reducing timelines for deals.
Assocham secretary general D.S. Rawat said in a statement from New Delhi that easing FDI norm would favourably impact the pharma industry by providing access to more capital/funds for investing in research and development and creation of more Intellectual Property Rights (IPRs).
Indian Drug Manufacturers' Association president S.V. Veeramani told IANS that foreign investors were reluctant to invest in India owing to delays in getting approvals in greenfield projects and more interested in brownfield projects.
"Now there will be more FDI inflows in the pharma sector. We expect FDI inflow of around $3 billion, but over a period. The investments will happen in Indian formulations companies," he added.
Indian Pharmaceutical Alliance secretary-general Dilip G. Shah, however, told IANS that "with 74 per cent FDI, the government's control is totally gone. There are two vaccine makers in the country. They supply major portion of some vaccines within and outside India. If some foreign company takes 74 per cent control and jacks up the prices, then the impact will be severe".
Observing that there was the risk of Indian industry's jewels going away, Shah said Indian companies with good manufacturing facilities were not willing to sell their stakes while there were no takers for companies with me-to products.
"One has to see how much FDI would come into the Indian pharma sector," Shah added.
--IANS
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