Dilip Shanghvi's wealth creation machine

The company's stock has appreciated at 35% a year for 20 years

This is a stock that has seen its price go up 35 per cent every year for the 20 years it has been listed, starting 1994. From a shareholder’s perspective, these returns are astronomical: an investment of Rs 10,000 then has become Rs 50 lakh today and this doesn’t include dividends. The founder owns 63.65 per cent of the company and his stake in the company is valued at over Rs 1.3 lakh crore. The company is Sun Pharmaceutical and its founder is Dilip Shanghvi.

Shanghvi, managing director, Sun Pharma, made news earlier this week when he became the richest Indian as calculated by the stock market value of his stake in the two listed companies Sun Pharma and Sun Pharma Advanced Research. Mukesh Ambani has dropped from first place to second, trailing Shanghvi by a couple of thousand crore.

Sun Pharma is an exceptional company in many ways. It is a major player both in the domestic and international markets. It has grown its business organically as well as through acquisitions (it has made 16 acquisitions since 1997). In the ’90s, the global market opened up for the Indian pharma sector, just like it did for software services. Indian companies specialised in process research and were able to introduce cheap, generic versions of drugs which complied with local regulations in global markets.

 
Not restricted to the domestic market where growth rates couldn’t leapfrog, pharma companies were able to post double-digit growth in sales and profits, and create huge shareholder value. Promoters of Cipla, Ranbaxy and Dr Reddy’s all entered billionaire lists. And within the pharma industry, Sun Pharma raced ahead of Dr Reddy’s, Cipla and Ranbaxy (which will soon be merged with Sun Pharma), in all parameters: sales, profit and market capitalisation.

Shanghvi is an outsider in the Indian corporate firmament – he wasn’t born into wealth. In 2002, Shanghvi entered the top 10 Richest Indian list in the BS Billionaire Club, and joined the ranks of other self-made billionaires such as N R Narayana Murthy, Sunil Mittal, Shiv Nadar and Subhash Chandra.

For a company that had rather modest beginnings in 1983, Sun Pharma has come a long way. It enjoyed a net profit margin of 35 per cent, while Dr Reddy’s and Lupin were both around 16 per cent in FY14. For the nine months ended December, Sun Pharma’s net profit margin improved to 38.8 per cent and was nearly twice that of Lupin’s 19.7 per cent. Sun Pharma’s market capitalisation is more than that of Lupin, Cipla and Dr Reddy’s combined (the second, third and fourth most valuable pharma companies, respectively).

The Sun Pharma stock is an outperformer across time frames. In comparison to other sectors too, it stands tall. On March 5, 2015, it was the tenth largest company in market capitalisation on NSE, after State Bank of India and ahead of Hindustan Unilever, ICICI Bank and Tata Motors. Between 1995 and 2014, over 40 companies rewarded their shareholders with a compounded return of over 20 per cent a year, and just four of these companies’ share prices gained 30 per cent plus every year; Sun Pharma being one of them. Only Infosys has earned its shareholders two percentage points more than Sun Pharma’s 35 per cent every year in the past two decades. Motherson Sumi and Eicher Motors are the two other stocks that trail Sun Pharma in the 30 per cent-plus group.

COMPANIES WITH 30% PLUS RETURNS A YEAR FROM 1995 TO 2014

Infosys, Sun Pharma, Motherson Sumi, Eicher Motors

COMPANIES WITH 20% PLUS RETURNS A YEAR FROM 1995 TO 2014

Amara Raja Batteries, Symphony, Lupin, CRISIL, Shree Cement, Ratnamani Metals, Havells India, Wipro, Pidilite, NESCO, Avanti Feeds, Hero Motocorp, Adani Enterprises, Vinati Organics, Mayur Uniquote, Hawkins Cookers, GRUH Finance, Guj Fluorochem, Asian Paints, Dhanuka Agritech, Berger Paints, Coromandel International, Hindustan Zinc, Apollo Hospitals, Gujarat Gas, Honeywell, TVS Srichakra, MphasiS, Titan, Kotak Mahindra Bank, HDFC, Britannia, Balkrishna Industries, Kansai Nerolac, Kirloskar Industries, Future Retail, Exide Industries.

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(Niraj Bhatt is web editor at Business Standard)