Mumbai: With nearly 5 per cent share in the world generic market, are Indian pharma companies ready to go global? How competitive are their current business models?
Shahina Mukadam of IDBI Capital Markets says that acquisitions done by the pharma companies will start delivering from next year. She adds that acquisitions give access to European markets.
Prashant Vaishampayan of UBS India says that large pharma companies will go for M&As in a big way. He adds that one will see a two way movement; Indian companies acquiring companies abroad and MNCs acquiring Indian companies for a cost advantage.
Exclusive interview with Shahina Mukadam of IDBI Capital Markets and Prashant Vaishampayan of UBS India:
Q: Lay it out as you see it in the next 12 months for all pharma players and whether or not you see M&As being the growth for these companies, or will it be inorganic moves for them?
Vaishampayan: We do see pharma as the space to own in 2006. Infact in the early part of the year there was an issue regarding valuations, but by May that issue had been sorted out and the companies are progressing well with their M&A plans.
We have seen several M&As and the media is talking about several more. It will continue to be a growth driver in my opinion for Indian companies, both in Europe and maybe also in US.
Q: Whom would you be looking at with more interest, companies that are making acquisitions abroad, or would you advise people to buy into companies that could get acquired like Matrix Laboratories?
Vaishampayan: We have been focusing on the larger Indian names and they have been talking about being on the buy side rather than on the sell side. These are the companies that we think would execute some M&A deals, which are not very large, but certainly large enough to increase their growth rates going forward.
Q: For two of them that have made big moves- Dr Reddy’s and Ranbaxy, how do you weigh it against the growth prospects versus the sort of stretch that their balance sheets might see?
Mukadam: I think immediately it is not earnings accretive, atleast we have not seen it in the first one-two years. But over a period of time, especially starting from FY08, I think these acquisitions will start delivering on profitability and they will start to be earnings accretive. For Ranbaxy Laboratories in fact it could be a little early because it is a calendar year.
I think more than just being earnings accretive in the medium term, it is the presence that the companies are building over a larger number of geographies especially in Europe in which a large part of the acquisitions have taken place in the last two years.
Q: From the midcaps now, which stories stand out amongst the rest?
Mukadam: As we have discussed earlier, we continue to like some of the stocks, which are in the CRAMS, Contract Research And Manufacturing Services, space. They have got a number of new projects, which they are preparing for and I expect them to contribute in a big way to revenues in FY07-08.
Stocks like Divi’s Laboratories, Dishman Pharma, Nicholas Piramal and also companies like Cadila, which have not performed in the last one-two years, are also looking at that space. I think these companies all have good contracts in hand and they are building up manufacturing facilities and preparing for it in a big way.
Q: What about the R&D companies like Jubilant and Dabur?
Mukadam: For R&D companies it takes a lot of time for us to start factoring it into the numbers. To my mind there would be just about three-four companies as of now like Dr Reddy’s, Ranbaxy or maybe Glenmark and I think the other companies are a bit behind as of now.
Q: What do you see as a more likely scenario, the big global players will enter this market and get into JVs or tie-ups of some kind, or that our own companies will go out and then muscle their own power like Ranbaxy and Reddy has?
Vaishampayan: I think it will be a two way street. Clearly the Indian manufacturing and also the research advantage that it brings is something that the large companies cannot ignore, whether they are generic companies or R&D driven companies. So they will continue to come here and the fact that they can open a 100% subsidiary would mean an increasing presence in India.
At the same time, Indian companies want to grow and they want to become far more global than they have been in the past. I do expect them to go out, especially to the European markets. Latin America is another area where one is hearing about increasing focus. Russia and the CIS markets are also getting more attention, so certainly it will be a busy two way street.
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