Mumbai: Dilip Shanghvi’s faith in the strategy that growth in the drugs business depends on overseas acquisitions hasn’t wavered all through the ups and downs of the tussle for control over Israel’s Taro Pharmaceutical Industries Ltd.
“There is nothing available locally at the moment that will make sense to our business expansion plan,” says Shanghvi in the ground floor conference room at the Mumbai head office of Sun Pharmaceutical Industries Ltd, India’s biggest drug company by market value.
Shanghvi, Sun’s 54-year-old chairman and managing director, has put the company’s new expansion plans on hold as he battles over Taro and tries to sort out US subsidiary Caraco Pharmaceutical Laboratories Ltd., which has had operations halted by the US Food and Drug Administration, or FDA.
“It will take a while to resolve these key issues,” he said. “But there are options available to us,” he adds, without elaborating.
Sun has never been threatened by a liquidity crisis in the last two and a half decades of history, having always followed a guarded approach in acquisitions and business expansion.
This conservative strategy, ensuring a 25% return in investment in four-to-five years, has meant he’s sitting on Rs3,500 crore of cash even as the rest of the world emerges from a cash crunch. This is money Shanghvi will use to acquire more companies overseas once he tides over the present troubles.
According to an industry analyst with a foreign brokerage, Sun has an established track record when it comes to turning around businesses. Still, strategies that were relevant five years ago may need revisiting, given the sector’s dynamism, he said.
“Sun Pharma remains credible for its achievements” by having followed “its own way of growing the business by selecting niches in all the markets, including the US and Europe, but by not being overleveraged,” he said.
Sun hasn’t been as aggressive as Dr Reddy’s Laboratories Ltd, Ranbaxy Laboratories Ltd and Wockhardt Ltd, he said. “It didn’t want to overleverage, and followed its own way of growing the business by selecting niches in all the markets including the US and Europe.”
The company has also never tried a collaborative approach, which is traditional industry practice, said the analyst, who doesn’t want to be identified as his organisation doesn’t allow comments to media.
Sun is currently engaged in court cases in the US and Israel over Taro, apart from seeking regulatory compliance for Caraco.
Shanghvi, a first-generation entrepreneur who built Sun from a partnership trading firm, says “We never evaluated our decisions based on failures. Now, we make more money a day than what we used to make in a year.”
Hailing from a traditional Gujarati business family, Shanghvi chose the country’s business capital as his base for the drug manufacturing company, which was formed in 1983.