Sanofi-Aventis SA’s move to consolidate its stake in its Indian subsidiary Aventis Pharma Ltd (APL) sent the stock up by 4% to Rs1,827 apiece. Its holding will rise from 50.1% to 60.4% after the stake purchase, but since the transaction is between existing promoters, there will be no open offer. As the parent already holds around half of APL’s equity, the stake purchase will not make any material difference to its operations.
The buzz created by the transaction can be attributed to the timing and speculation on Sanofi seeking to further increase its stake.
Like other global pharmaceutical companies, Sanofi, too, is attempting to drive growth in emerging markets. Consultancy firm IMS Health recently predicted that India, along with Brazil and Russia, will each add between $5 billion and $15 billion (Rs22,750-68,250 crore) in incremental sales between 2008 and 2013. The company expects multinationals in India to benefit from patent protection, a growing middle-class population, emerging rural markets and better healthcare infrastructure.
APL is among the active multinationals in the Indian market, with domestic sales of Rs736 crore in 2009 (up by 12%) and exports of Rs229 crore (up by 9%).
Some of the major therapeutic categories it is present in are cardiovascular, diabetes, oncology, anti-histamines and pain management. Domestic pharmaceutical market growth is good, with growth rates improving from 10% in April to 17% in December. But competition is picking up. While large domestic companies were earlier more focused on global generic markets, setbacks in these markets have led to a refocus on the domestic markets.
All pharmaceutical firms are adding to their sales force and expanding into smaller cities and towns to get higher growth. While this means more investments in field force and inventories, higher competition may also be leading to price cuts, affecting sales growth.
But APL is likely to maintain an aggressive stance in the Indian market, mainly because of its parent’s focus. Sanofi’s sales in emerging markets grew by 19% in 2009, contributing 25% of overall sales.
In August, Sanofi had acquired vaccine maker Shantha Biotechnics Ltd. Its desire to improve its performance in India is likely to be visible in APL’s performance in the longer run. But investors appear to be pinning hopes on Sanofi seeking to further hike stake.
That perhaps explains why APL’s share price has risen above the price of Rs1,750 at which Sanofi consolidated its shareholding.
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