Cipla betting big on talent for future growth

Range of expensive hires sharply pull up staff cost; firm says part of a plan for revamp, various initiatives planned using new teams

Drug maker Cipla, undergoing a makeover for a year, saw a significant increase in its employee cost, up 56 per cent over a year during the March quarter and 49 per cent for the year ended March.

This is mainly because the company has invested heavily in recruiting professionals at various levels. While many were fresh graduates from top business schools, Cipla  also hired senior executives from foreign multinational corporations, beside leading peers in the domestic industry.

For instance, it recently hired senior executives in key functions of finance and international business & strategy from competitors such as Lupin and Dr Reddy’s Laboratories. In the past year, several senior executives handling either product branding or international markets, and even on the regulatory side, have joined from various multinationals, including Novartis.

CHANGE OF TACK

• Cipla recently hired senior executives in key functions of finance and international business & strategy from competitors such as Lupin and Dr Reddy’s Laboratories
• Last year, Cipla acquired the entire stake in Cipla Medpro South Africa and increased its stake in Quality Chemical Industries of Uganda. A significant part of the increased personnel is due to these acquisitions

Subhanu Saxena, its global chief executive officer since February 2013, also joined from Novartis, where he had led the global product strategy and commercialisation functions at Novartis. Cipla had also announced the hiring of Frank Peters (ex Teva and GlaxoSmithKline) to head its respiratory business and the European Union region in July 2013. A company spokesperson said these were part of an overall five-year road map to sustain growth. Teams in critical functions such as research and development, quality, manufacturing and the supply chain are being strengthened, she said.

Adding: “The organisation has completed year one of a two-year investment cycle. Last year, the company had identified three strategic priorities to sustain its growth. These were building the right organisational and governance models, developing a robust portfolio and pipeline, and executing the growth strategies. Each of these has elements of talent enhancement.” Cipla’s consolidated financial results show the company incurred employee benefit expense of Rs 428 crore during the quarter ended March, up from Rs 275 crore in the same period a year before. For the full year ended March, employee cost was Rs 1,543 crore, against Rs 1,036 core the previous year.

“Our core team is a good mix of people in Cipla for several years and some talented new recruits. We have now reached some level of steady state in terms of the organisation build,” said the spokesperson.

A couple of acquisitions in the past year also contributed to jack-up in staff cost. Last year, Cipla acquired the entire stake in Cipla Medpro South Africa and increased its stake in Quality Chemical Industries of Uganda. A significant part of the increased personnel is due to these acquisitions. However, the standalone staff cost is also high, rising 31 per cent to Rs 333 crore during the January-March quarter. For the year ended March, this cost rose to Rs 1,285 crore from Rs 969 crore earlier.

A Cipla spokesperson said the next 24 months were crucial, as the company planned to use the new organisation structure and team for priority initiatives. "What we've put in place gives us the footing to achieve a leadership position in our areas of strength,' she said.

This big investment in hiring over the past year resulted in a sharp decline in the company's operating earnings margin. Though the cost is now likely to stabilise, investors will be looking at the returns and growth trajectory in the near future.

The increase in staff cost at other domestic companies was relatively low in a similar period. For instance, during 2013-14, the consolidated employee cost of Dr Reddy's Laboratories went up 22 per cent and of Sun Pharma by 35 per cent.