Piramal Healthcare, which sold its formulation business to Abbott Laboratories last week for over Rs 17,500 crore, will announce a road map on future investments and growth strategy within the next three months.
“I think we will be able to give an indication on the future growth strategy and new areas of investment by end of July or August,” a top level executive told Business Standard.
It was too early to decide on the future as the transaction is yet to consummate, said N Santhanam, group president and chief financial officer (CFO), when contacted.
“I am now concentrating on completing the transaction. Let the money come in,” he said.
Company executives said the main focus for Piramal Healthcare — which has businesses to the tune of Rs 1,670 crore minus the formulation business — will be to strengthen and make a global footprint for its over the counter (OTC), diagnostics and anesthesia business, besides its mainstay contract manufacturing.
Analysts said the critical care (mainly anesthesia products) business of Piramal — which grew 148 per cent in 2009-10 to Rs 327 crore from Rs 132 crore a year ago — will be the main growth driver in future. Piramal Healthcare is already the number three player in global anesthetics market, behind multinationals Baxter and Abbott.
Piramal had strengthened this business in the past two years aggressively, through acquisitions, they noted.
It recently acquired Bharat Serums and Vaccines’ injectible anesthetic products and in 1998 had acquired the blood plasma products of PlasmaSelect AG, Germany, marketed under the brand name “Haemaccel” in over 38 countries. In the same year, the company bought the inhalation anesthetic gas distribution arms of RxElite Inc and Minrad International in the US. In 1998, Piramal Healthcare had bought Sanofi-Aventis’ haemaccel-related business in the Indian market, along with the manufacturing facility in Mumbai.
“After anesthetics, contract manufacturing will be the best bet for Piramal Healthcare, which pioneered this business in India and is now among the top 10 contract manufacturers for global pharma,” said Ranjit Kapadia, vice-president, institutional research, HDFC Securities.
Piramal Healthcare's contract manufacturing business had suffered last year with business declining by 17 per cent to Rs 885 crore in 2009-10, compared with Rs 1,061 crore in the previous year. The slump was mainly due to the economic slowdown resulting in inventory with big pharma and the situation has improved, which augurs well for Piramal Healthcare, he said. Piramal Healthcare still has eight manufacturing plants in India, UK, Canada and US, which can be used to augment the contract manufacturing business, said the analysts.
The company is also likely to target further aggressive brand acquisitions to widen its consumer product basket in the OTC division, which sells popular products like the recently acquired i-pill, Lacto Calamine and Saridon. The company is the largest producer of Vitamin A in India. This business and OTC business together had Rs 252 crore turnover in 2009-10.
Diagnostics (a network of pathology laboratories and diagnostic equipment) generated business to the tune of Rs 206 crore in 2009-10, with a growth of over 20 per cent over the previous year. “The market for diagnostics products are highly fragmented and players like Piramal will be able to consolidate in future, with the kind of cash at hand, said Kapadia.
The huge flow of funds will also benefit other group companies, as Rs 350 crore will come to Group holding company Piramal Enterprises, as transaction fee for the deal.
“We will not use funds from this deal for investments in other group companies like glass business or other businesses in the Group,” said Santhanam.
Was the sell-out smart on Piramal's part? Are they losing ground and looking at better ventures or is it decoy from the fact that Piramal who is a smart bidder in these acquisitions would stop its inherent strength of formulations to align itself to the overall interest of the group? Is Piramal's move short term loss long term gain to invest into the indian pharma legislative lobby scene?
With reference to the statement that "the huge flow of funds will also benefit other group companies, as Rs 350 crore will come to Group holding company Piramal Enterprises, as transaction fee for the deal", it appears that the proposed payment of Rs. 350 crore by Piramal Healthhcare to Piramal Enterprises, is in effect by way of diversion of funds, without adequate consideration. A pertinent question is as to why the consideration for the guarantee is not fixed at one per cent, or for a lower/nominal amount of Re.1, instead of at two percent, as the agreement is not at arms lenght. The huge amount involved is reminiscent of the fees, which was being extracted by the erstwhile managing agents. If thought fit, Mr. Santhanam may clarify this point, for the benefit of the public shareholders, whose holding is more than that of the promoters. Despite the statutory disclosure, the legal maxim of 'conflict of interest' aptly applies here and survives.
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Company executives said the main focus for Piramal Healthcare — which has businesses to the tune of Rs 1,670 crore minus the formulation business — will be to strengthen and make a global footprint for its over the counter (OTC), diagnostics and anesthesia business, besides its mainstay contract manufacturing.
