Abbott India won’t absorb Piramal biz

Abbott India won’t absorb Piramal biz

Mumbai: US drugs multinational Abbott Laboratories, which completed its acquisition of the 17,000 crore Piramal Healthcare Ltd’s domestic pharma business on Wednesday, will maintain it as an independent unit reporting directly to the global company’s newly created established products division.

It doesn’t anticipate a sudden integration of operations with the business of the almost century-old subsidiary Abbott India Ltd, a senior executive handling emerging markets at the global pharma products group told Mint on Thursday.

“Piramal’s healthcare solutions business has a large portfolio of 350 branded generics, including several market-leading brands that holds the Indian company’s reputation. We will operate this as a separate business unit, led by its current local management team," said Michael J. Warmuth, senior vice-president and the new head of Abbott’s established products division. The division focuses on branded generics and looks for opportunities in emerging markets.

Abbott, which has become India’s largest drug maker by market share after acquiring the Piramal business, completed the deal, which was signed in May, ahead of its original schedule of six months.

Primal Healthcare’s pharma business had 8,000-odd employees on its payroll. With this acquisition, Abbott India has become the largest employer in the Indian drug industry with a combined employee strength of at least 10,500. That makes it the largest employee group in any country outside the US for the company, which has around 90,000 workers worldwide.

The Abbott-Piramal deal was the largest acquisition in the Indian drug industry in terms of size and premium, valuing the domestic drug business at nine times the 2009-10 sales. The valuation was based on a projection of 25% business growth.

The Indian drug formulation market has posted annual growth of 15-16% in the last couple of years.

“It was a large valuation, but our investment was never intended to be on a short-term perspective," said Warmuth. “Since we were so convinced about this market’s growth potential, we had to pay a premium to purchase a premium asset with long-term focus here."

The Indian drug market stood at $8 billion (around 37,300 crore today) in March, and is estimated to more than double by 2015, according to market research agencies.

Warmuth expects Abbott’s pharma sales in India to exceed $2.5 billion by 2020.

Abbott India, which is currently focused on drugs and nutritional products in the local market, posted annual sales of 784 crore as of November 2009. Abbott India follows a December-November accounting year.

“We considered three key factors before identifying Piramal as a target in India. They were the cultural fit, a portfolio of established brands and the management skill," Warmuth said. “In fact, there was a scarcity for such assets in the emerging markets, including India. So the price was quite justified."

Deal-makers agree. “Abbott had chosen to take a realistic view of the business. If you make a 10-year model for a 15% annual growth rate, which is not too much for a Piramal kind of a portfolio, and with margins staying more or less constant, the number (Piramal’s valuation) makes sense," V. Krishnakumar, executive director and head (healthcare group) at financial advisory firm Avendus Capital Pvt. Ltd, had said in an interview in August.

Warmuth said Piramal’s proven business model in India and experienced local leadership team, combined with the global resources of Abbott, will allow it to scale up the business in this emerging market. “We are committed to retain the talents and the products of this new Indian asset to grow the business here," he added.

Harini Subramani contributed to this story.