Deal driven by geographical synergies: Ravi Talwar

Interview with investment banker with ICICI Securities, which advised Ranbaxy in the buyout deal

ICICI Securities was one of the advisors in $3.2-billion Sun Pharma-Ranbaxy deal. Ravi Talwar, investment banker with ICICI Securities, which advised Ranbaxy, talks to Reghu Balakrishnan about the impact of the deal and scope for more consolidation in Indian pharmaceuticals industry. Edited excerpts:

What does the merger mean for the Indian pharmaceutics sector?

It was a landmark deal. The combination of Sun Pharma and Ranbaxy creates the fifth-largest speciality generics company in the world and the largest pharmaceuticals company in India.

There is tremendous growth and this merger will create lasting value for shareholders of both the companies, through a successful combination of the two franchises.

Consolidation is taking place in India, as is evident from the Torrent-Elder and Sun-Ranbaxy deals. What does this mean?

The pharmaceuticals sector in India is highly fragmented.

Consolidation is expected to continue in the sector, owing to factors such as increasing price control, which are putting pressure, especially on small- and mid-cap companies, and making these consider consolidation options.

The Sun-Ranbaxy deal, however, has been driven by significant product and geographical synergies between the two companies, which will benefit both sets of shareholders.

Foreign pharmaceutical majors have turned cautious, after bitter experiences with Ranbaxy, etc. What is their attitude towards large inbound deals in India?

India will continue to be an attractive strategic destination for foreign companies, considering ours is among the fastest growing markets in the world.

Will multinational companies prefer more brand buyouts? If so, in which therapeutic areas?

For companies already present in India, brand buyouts will be the most preferred option. However, for new entrants, it will make sense to buy distribution and marketing infrastructure, including the field force to get a meaningful foothold in the Indian market.

Will recent issues related to the US Food and Drug Administration (FDA) make foreign players more cautious on inbound deals?

There is likely to be greater focus on diligence, particularly towards US FDA-approved plants.

Indian pharmaceutical companies are reluctant on large outbound deals. Why?

Large outbound deals also mean greater risk. Currently, Indian companies prefer smaller deals and are restricted to buying product registrations and front-end marketing platforms.