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| Mankind vs Goliaths |
| Vandana Gombar & Joe C Mathew / New Delhi Nov 03, 2009, 00:32 IST |
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Little-known Mankind Pharma has earned a name for itself with cheap drugs. Can it move up the value chain?.
 Live in Rome in Roman style.” It may be a slightly distorted version of the original advice, but it has been the business mantra of Ramesh Chand Juneja, the 56-year-old promoter and chairman of Mankind Pharma. What he means is that business in India should be done in Indian style, which is what he did. Not for him the sophisticated craft preached by globe-trotting management gurus.
Juneja can afford to cock a snook at them. His 15-year-old venture has broken into the ranks of the country’s top ten pharmaceutical companies. This is tougher than it sounds. India is easily the world’s most competitive pharmaceutical market. There are over 20,000 pharmaceutical companies in operation. A drug could have as many as 200 brands in the market place. The market share of the leader, Cipla, is only about 5.5 per cent. Juneja, with a current turnover of Rs 1,000 crore per annum, can claim 2.7 per cent of the Rs 37,000 crore market.
What is more, his strategy is today commonly discussed in the boardrooms of large pharmaceutical companies which had initially dismissed Mankind as an upstart snatching market share with an unsustainable low-price strategy. The company is rubbing shoulders with venerable elders at the high table like Ranbaxy, Cipla, Sun Pharma and Lupin. The list of investors who want to invest in the closely-held company is getting longer by the day.
Price play
The Indian pharmaceutical market, like all other product categories, is extremely sensitive to prices. Unless the medicine is critical, buyers invariably ask doctors and chemists for cheaper options. The intense competition in the industry has ensured that prices are low. Juneja brought down the price levels further.
So, when an anti-bacterial drug, Zenflox, was selling for Rs 40 a tablet (Rs 400 for the mandatory 10-tablet course) way back in 1996, he entered the market with a price which was 70 per cent lower.
He did the same a few years ago when he started selling one of the largest prescribed antibiotics, Moxikind CV, at 64 per cent less. The strategy seems to have worked. Mankind today boasts a 20 to 22 per cent share of the Rs 250-crore market for the drug.
Most companies put up their own production facilities to keep quality and cost under check. Over the years, there has emerged excess production capacity in the industry. Juneja began with outsourcing all production to third parties. This required no capital expenditure and he was thus able to keep his prices low.
Juneja turned conventional wisdom around in another way. Most companies start with urban markets first and then go down the value pyramid. The idea is to pluck the low-hanging fruit first. Juneja decided to begin in rural and suburban India, which is where 70 per cent of the population lives. “We soon developed a taste for the rural,” says Juneja. The key was to have the right product at the right price.
“I first noticed this company back in 2002, when it was gaining market share in some of our products,” says Sanjiv Kaul, a former top executive at Ranbaxy and now one of the managing directors at private equity firm Chrys Capital. Once he delved deeper, Kaul found that Juneja was running a sound business. Chrys Capital thus invested a little over Rs 100 crore in the company for a 10 per cent stake. This investment is now pegged at anywhere between Rs 300 crore and Rs 500 crore. Kaul, who serves on the Mankind board, believes the company has successfully replicated the Wal-Mart model by reaching low-priced medicine to the non-metro markets.
Men at work
To reach your medicine across markets, you need a large force of medical representatives. Though it is new and not the biggest name in the business, its 5,000-strong force of representatives is second only to Piramal Healthcare. As its turnover is Rs 1,000 crore, this means each representative brings in sale of Rs 20 lakh. The number for multinational pharmaceutical companies operating in the country is Rs 7 to 10 lakh, while Indian-owned companies it is Rs 3 to 5 lakh. New entrants are lucky if they can hit Rs 1.5 to 2 lakh, says Manoj Garg who tracks the pharmaceutical industry at Emkay Research.
Is it because Mankind throws bigger inducements at doctors for prescribing its products? “People think we bribe the doctors with expensive gifts,” laughs Juneja, dismissing it as a loser’s excuse. Since Mankind works on thinner margins than big companies, he argues that he cannot take them on in the incentives game. “The most expensive thing that we would have done for a doctor is to arrange a hotel room or a car. We don’t take chartered planes to Thailand,” says Juneja.
Mankind’s total budget for sales promotion is Rs 40 crore, which covers 300,000 doctors across the country. It is 4 per cent of its revenue, and broadly in line with the industry average of 3 to 5 per cent. That may be true. But Juneja for sure knows first hand how the system works. He worked as a medical representative for Lupin. Ask him for his role model and he will without batting an eyelid mention D B Gupta, Lupin’s founder and chairman.
So what explains the high productivity of his sales force? Juneja indicates it could be the incentives on offer that make the representatives walk that extra mile. “Our salaries are comparable with the industry — maybe 80 per cent of industry standard. Our incentives are, however, good. Some of our sales people take Rs 6 to 7 lakh annually as incentives,” he says. More than that, it is his personal touch that makes the difference. “Managers behave like brothers,” he says. And there is a communication pipeline which runs from the top down to the last medical representative who knows the market strategy and what is to be done.
While the efficacy of a flat structure can be debated, global pharmaceutical companies have begun to see merit in Juneja’s team. Some of them want to use it to sell their products in the country. And they are willing to pay a price. The products will have Mankind as the co-brand. Some announcements can be expected soon, says Juneja.
Domestic rivals have kept an eye on the company’s growing business and market share, but they have their doubts on the sustainability of its profits. “Its medicines are priced very low. It has registered phenomenal growth but I am not sure how profitable it is and how sustainable is its growth,” says the head of one of the country’s top five drug companies. At the moment, closely-held Mankind is riding the gravy train: It recorded a profit (before tax) of Rs 185 crore on a turnover of Rs 920 crore in 2008-09. It has projected a profit of Rs 236 crore on a turnover of Rs 1,200 crore in 2009-10.
Strategy reversal
Of late, Juneja has begun to move up the value pyramid — a reversal of his original strategy. Though he outsourced all production in the initial years to keep his costs on a tight leash, he has now begun to manufacture his own drugs. Sector experts say outsourcing works well with anti-infectives, which are at the bottom of the value chain. For lifestyle drugs, the more lucrative segment of the market, one needs one’s own facilities. Juneja has set up six such units. These are all owned by the Juneja family and not Mankind, which retains its focus on marketing. Almost 80 per cent of the production is now inhouse. In addition, Mankind has a manufacturing unit at Poanta Sahib to manufacture injectibles, which is compliant with the United States Food & Drug Administration.
The company is also moving away from Tier-II and Tier-III markets into the metros where it is competing head-on with large companies. With cash reserves of Rs 300 crore, it is on the prowl for some brands. It has got aggressive in over-the-counter products which can be bought and sold without a doctor’s prescription. It has a presence in oral contraceptives, condoms, pregnancy determination kits, sanitary towels and toothbrushes, among other segments. These account for 5 to 6 per cent of the company’s current revenue. Mankind also wants to go international and hopes to sell in at least three geographies — Vietnam, the Philippines and Sri Lanka — in the next six months.
All these measures, Juneja hopes, will help him leapfrog into the top-five bracket by 2015. There is also some talk of a public issue in two or three years. The question that is now being asked is whether the company will be able to maintain its stellar growth (47 per cent over the last five years) in the light of the strategy reversal. “So far, so good,” agrees Kaul, “but going forward, one of the challenges would be to maintain this level of profitable growth.”
There are other challenges too. It is still a promoter-driven company. Has Juenja built sufficient management bandwidth? Who will run the company after him? Juneja says he has not yet applied his mind to succession planning. Juneja’s younger brother, Rajeev, runs the marketing and sales network. His nephew, Sheetal Arora, is the marketing director in the company. Juneja’s 23-year-old son, Arjun, has recently been inducted into the board as a director. In all probability, he will move into his uncle’s shoes once he succeeds Juneja at the corner office. The equations may all have been wired up but Juneja will need to induct professionals quickly before he attempts the next leap.
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