Cipla ready with big capex on ground

Having spent nearly a billion dollar on manufacturing, the firm is looking for a bigger pie of the global generic market

Cipla, among India’s top pharmaceutical companies in India is set to play a bigger role in the domestic market and beyond. In last five years, the company has invested nearly Rs 3,000 crore in capacity expansion, the most among its peers to create India’s biggest manufacturing set-up. This gives Cipla the ability to scale-up its operations rapidly by making small incremental investments in sales, distribution and marketing.

This may prove decisive for the company once growth the domestic pharma market picks-up. A strong manufacturing print in India will also help the company to grow aggressively in the export market. This may explain string of new strategic decision by the pharma major in recent months.

Cipla recently spent Rs 270 crore to buy an office space in Peninsula Business Park in Lower Parel, Mumbai for its new headquarters. Beisdes, its plans to spend another Rs 400 crore in FY14 to scale its active pharma ingredients (API) plants and product development (R&D).

"In 1995, export accounted for just 10% of our revenue. Today, that ratio is 55% in favour of exports.  while sales in the domestic market is  and 45 local. In next 2-3 years, overseas markets are likely account for 80% of our revenues,” said YK Hamied, MD, Cipla in a recent interview. All of our factories are export-oriented. However, all foreign countries demand to set up facilities at their own countries, he said while explaining company expansion plans.

Cipla bid to acquire majority control in its South Africa joint venture Cipla Medpro is step in the same direction. Cipla Medpro is among top five pharma companies in that region and Mr Hamied can leverage the company’s network in Africa to become among top pharma companies in the continent. Last month, Cipla had sweetened its offer by 17% to take full owenership of Cipla Medpro. In all, it will spend spend about $250 million (Rs 1300 crore), or 10 rand a share. The offer was 8.55 rand a share in November 2012. Spending the money won’t be a stretch given Cipla’s free cash flows of around Rs 1000 crore in FY13.

"The proposed acquisition will strengthen its market position, help in expanding local manufacturing capacity, and expand into other African markets. Its dependence on Cipla makes this transaction advantageous to Cipla," said a report from HDFC Securities.

Strengthening presence in Japan and Europe are other priorities for Cipla in FY14. Japan is the second largest pharma market in the worldin terms of value. "We are entering into an alliance with Japanese companies to sell our products there," Hamied had said. Also, Cipla is set to tap the European inhaler market with generic drug launches in those markets. The company has a product pipeline of 11 products, to sell in the European market.

The company is well positioned to scale-up exports to export market given its Rs 900 crore investment at its Indore special economic zone. The facility is likely to clock sales of Rs 550 crore in FY13E and Rs 900 crore by FY15, say analysts. The unit has already been approved by US FDA.

Ajay Luharuka, head- Treasury at CIpla said, "We are expanding our API manufacturing capacities at Bangalore, Kurkumbh and Patalganga, essentially for backward integrating our raw material requirements. These API facilities are expected to be ready for commercial production this year."

The company is also eyeing the Chinese market either through organic route or acquisitions. “Cipla is planning to new joint ventures and even acquisitions in key emerging markets like Turkey, Morocco, Brazil and Nigeria,” says a recent report by First Call Research.