Ranbaxy eyes acquisitions to stay leader, Sobti says

Ranbaxy eyes acquisitions to stay leader, Sobti says
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First Published: Fri, Oct 30 2009. 12 16 AM IST

Foreign business: Ranbaxy’s Atul Sobti says large markets for the company now would be France and Italy and a little bit of Spain. Ramesh Pathania / Mint
Foreign business: Ranbaxy’s Atul Sobti says large markets for the company now would be France and Italy and a little bit of Spain. Ramesh Pathania / Mint
Updated: Fri, Oct 30 2009. 12 16 AM IST
New Delhi: Although its troubles with the US Food and Drug Administration (FDA) aren’t over yet, India’s biggest drug maker Ranbaxy Laboratories Ltd, controlled by Japan’s Daiichi Sankyo Co., has posted improved quarterly earnings for the first time in a year. Buoyed by the revival, Atul Sobti, chief executive officer and managing director, says in an interview that his company is eyeing acquisitions in India. Edited excerpts:
Your India business has been lagging for a while. Do you plan any business remodelling? Ranbaxy is aggressively planning acquisitions in India, we hear.
Foreign business: Ranbaxy’s Atul Sobti says large markets for the company now would be France and Italy and a little bit of Spain. Ramesh Pathania / Mint
Well, of all the places we are aggressive in, India has to be aggressive. I would not use the term aggressive anywhere else. I think for a leading company it’s very important to be a leader at home. So to that extent, resource-wise, marketing-wise, manpower-wise, whatever it takes, we have taken a conscious decision to do that and part of that answer could be inorganic growth.
How much would Ranbaxy be willing to invest in India?
We know normally 10-15% growth is possible. So obviously, you need to wait for 20%-plus growth as a starting point and what we need. But to me it’s more than just going from current to future. In India, we need to see what we may envision five years down the line and then come backward. I wish we had done it two years ago. We need a scale-up in our inputs and research. We have to go to smaller towns.
I think that’s the investment we have to make and we will do it. In fact the project is already on, we have just kicked it off and three months down the line we should be able to share it.
Ranbaxy’s Ebitda (earnings before interest, taxes, depreciation and amortization) margins, which have been low for the last few quarters, managed to enter double digits this year. How did you achieve that?
The first half of last year was between 12% and 14%. We started off with a very low base in terms of the revenue itself, especially in quarter one. I am not including any forex impact because that is a completely different area. On top of that, we had cost-wise started implementation of various models and cost reduction sometime in the first quarter itself and that has paid off. By the time we hit the third quarter, our cost base per se is at a much lower level.
And this is despite the fact that we have not chopped off people or facilities in the US despite the business becoming half. There was very good reason for us to reduce our facility or people in the US but in the US it’s a long-term market and we know that we will come back. We are operating at half the revenue or less than half the revenue and full cost in the US. If anything, actually in the US we have increased our capacity to ensure that we do not lose out some important launches for the future.
Are you referring to the expansion of the Ohm facility in New Jersey?
Yes, including people and investment. Also, the US has a very direct bearing on capacity utilization in India. So not just the fact that cost has gone up in Ohm directly, but indirectly, the capacity utilization has been hit in India so that overhead also continues with us. Again, in India we did not take a decision to chop shop. We took some deliberate decisions, for example, taking some volume business in Europe at lower margins so that capacity utilization remains good. If you can sustain a double-digit Ebitda, then you have a base which is fairly strong.
What is your strategy for Europe, not including Romania?
In Europe, for about two years now, we have decided to focus on just the bottom line. Top line is our decision as and when we want to get in. Our first decision happened in Germany when it went tender-based.
How are the company’s operations faring in Europe?
The UK has become lean and profitable. The large markets now would be France and Italy and a little bit of Spain. Today, all of them are profitable.
I think Europe is now stable enough for us to take bets whichever way we want. Different markets in Europe are going to give us leverage to do things differently.
But in Romania you have seen decline in growth.
Yes, hopefully temporary. But Romania has been unstable politically and otherwise in the last six months. And in the process we were therefore looking at various measures. Already the pipeline is very thin. Pharmacies are not giving reimbursements and as such wholesalers are not supplying. The pipeline is almost wafer thin and there is a limit to which this can continue. But the government needs to put the money in. So we are just keeping it very normal, basic. Whatever can get into the system we are pushing in. The advantage is if we need to change the model, we can pull back. We exited Vietnam completely from a local presence.
You are also planning to set up a manufacturing plant in Russia.
There is no plan but yes, the new rules say that local manufacturing is seemingly an area we need to look at so we will evaluate now. It’s too early now so we have not even discussed it.
Are you planning inorganic growth in Japan?
Japan will be led by Daiichi Sankyo because it’s their home ground. We will be more of their back-office partner. Obviously, they will either themselves, or through a partner, start the generic business and we will have the opportunity of API or active pharmaceutical ingredients. But that is currently being worked on and has not been frozen yet.
You have a joint venture (JV) partner in Japan. What will happen to that?
As and when we do decide to go ahead with Daiichi Sankyo on this, then we have to discuss with the JV partner how to go forward. And that I think should be amicable, we should be able to work it out.
How are you tackling the US now, the FDA issue, and how will you leverage the partnership with Daiichi?
The US business itself is probably at a base and there is really very little left for it to go down. Where it will go up will be first to file (FTF) and products where we are getting approval from Ohm. So that should start helping from this quarter itself. We are confident of realising the value of our FTFs. Our Indian plant at Tonsa (near Mohali in Punjab) will be inspected later this year.
Dewas (in Madhya Pradesh) is an easier one. We are ready and have asked for inspection and it’s a matter of FDA inspecting it and they should tell us in a month or two. Paonta Sahib (in Himachal Pradesh) is different and will take much longer—three-six months.
This entire thing (with the FDA) has cost us quite a bomb in terms of business and compliance costs and everything else.
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First Published: Fri, Oct 30 2009. 12 16 AM IST