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Scale issues may have forced Singh’s hand

Scale issues may have forced Singh’s hand
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First Published: Sat, Jun 14 2008. 03 07 PM IST

Updated: Sat, Jun 14 2008. 03 07 PM IST
New Delhi: At a lunch meeting late in July last year, over vegetarian noodle soup and sushi, Malvinder Singh was in a candid and expansive mood. Explaining the departure of some key senior managers at Ranbaxy Laboratories Ltd, the company of which he was chief executive and largest shareholder, Singh, then 35, was clinical in his analysis.
Every company in its lifetime, Singh said, goes through various phases. The people who had left—including chairman D.S. Brar, regional director Sanjiv Kaul and Ram Ramsundar, chief financial officer —had built the company to where it was (some $1 billion in revenues then). “But to take the company to the next phase, you need others who have done it,” he said. “Going forward as the company grows, it might even be that I’m not the right guy to run Ranbaxy.”
On Thursday, a day after Daiichi Sankyo Co. Ltd’s majority stake acquisition in Ranbaxy for up to $4.6 billion, or Rs19,734 crore, an industry executive said Singh perhaps was not being a soothsayer then, and that his thinking has always been that of a game-theorist—one who could clearly see that the highly competitive industry is headed towards a market structure favouring those with benefits of global scale and deep reserves, gaps in his own company’s strategy in that scenario, and the slim chance of emerging as a player of global strength.
Ranbaxy Laboratories chief executive Malvinder Singh (Photo by: Harikrishna Katragadda / Mint)
“After the deal, apart from the strategic direction and shape (of the company), everything in the business is as usual,” this executive said, asking not to be identified. Ranbaxy, according to Singh and Daiichi Sankyo’s president Takashi Shoda, will remain an independent unit of the Tokyo-based firm, Japan’s third-largest drug maker, running its business as before.
Still, the deal might have masked some of Ranbaxy’s difficulties, others in the business said. With its share price lagging the Rs550-a-share conversion price set for $440 million of foreign convertible debt maturing later this year, there would have been pressure on the company’s finances to the extent the share price was below that conversion price.
While there may have been pressure on Singh and his senior management team given Ranbaxy’s sluggish business growth in recent years, “a long term commitment could have resulted in strategies that might have reflected (well) in the share price and research benefits,” said a senior functionary at an industry lobby group, asking not to be identified because he may be seen as critical of Ranbaxy, India’s largest drug maker. Ranbaxy’s $1.6 billion revenues are less than half the $5 billion target it had set for itself for 2010, a deadline that the company has since extended to 2012.
“The company has been talking to multinational companies on exit options but of late two big research focused groups had even refused to value it even on the (current share price),” this lobbyist said.
The industry executive quoted earlier said companies such as Pfizer Inc. and GlaxoSmithKline Plc were interested in buying the Singh family’s 34.82% stake in Ranbaxy when talks with Daiichi Sankyo began some two months ago. But the chief of units of the two drug firms—Kewal Handa of Pfizer and H.B. Joshipura of GlaxoSmithKline India Ltd—denied such talks took place.
The Singh family’s increasing focus on two new businesses, healthcare and financial services that they had started a few years ago could have been another reason. Malvinder and his brother Shivinder run drugs retailer Fortis Health World, diagnostics business SRL Ranbaxy, hospital chain Fortis Healthcare and financial services firm Religare Securities Ltd.
On Thursday, shares of Ranbaxy closed at Rs543.50 each, down 3.08%.
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First Published: Sat, Jun 14 2008. 03 07 PM IST