Should touch Rs 1K crore from OTC this year, says Nandini Piramal

Piramal Pharma, which just finished a rights issue, has paid off Rs 958 crore in debt, and is now planning to focus on organic growth, cost control and operational excellence. The company is on a $1 billion growth trajectory having posted revenues of Rs 1,911 crore in the second quarter. In an interview with Sohini Das, Piramal Pharma Chairperson Nandini Piramal outlines her plans, and why she wants to focus on profitability. Edited excerpts:

What are the new global trends emerging in the contract development and manufacturing organisation (CDMO) business?

Last year was a tough year for both CDMO and critical care businesses. This year we have seen recovery and turnaround. The focus has been on organic growth and executing the expansions underway, besides cost control and operational excellence. The CDMO business will continue to grow; and people will continue to outsource manufacturing. Customers are not necessarily going to invest in new plants and capex. But they will also focus on risk mitigation, in terms of having multiple suppliers for each product.

Overall, the customer focus is going to be on quality and sustainability. They monitor us very carefully. All the big pharma companies have started to make commitments for net zero and we come as their suppliers. We have to also start making commitments. We are going to cut our carbon emissions by 42 per cent from the 2022 baseline by 2030. We are also reducing usage of fresh water; recycling and reusing waste water, etc.

Do you need to invest in the CDMO business?

It is a capital-intensive business. We will continue to invest where we see orders and where we see returns. We did $40 million capex in the first half and we plan to spend a similar amount in the second half of FY24.

You plan to launch 28 products in hospital generics. What are the growth plans for this business?

We will commercialise our pipeline in the hospital generics business in the next one to five years. They are in different stages of development. We look at what the hospital wants and where we can have a product that fits and the price. It is a generics business. There is some base erosion every year. Piramal Pharma has 55 per cent business from CDMO, about 35 per cent from hospital generics and the balance 15 per cent from over-the-counter (OTC) products. We have guided for high mid-teens’ growth for the second half of the year for Piramal Pharma. We had 14 per cent growth for the overall company in H1 — pharma solutions (CDMO) had 15 per cent growth; hospital generics business grew by 13-14 per cent; and OTC had 13 per cent growth.

You have reduced debt. Any plans to go for any acquisitions?

We reduced debt by Rs 958 crore. We closed our rights issue in August. We plan to use internal accruals to reduce debt further and bring it down to below three times Ebitda (earnings before interest, taxes, depreciation, and amortisation) by the year-end. The next focus is organic growth, debt reduction, operational excellence and cost control. We have done a few capexes, and we need to stabilise operations after that. Honestly, the valuations for assets that are available do not fit into our scheme of things. The debt has become expensive, and so the returns have to manage that. I don’t think interest rates would soften much in the next six months.

Forty-two per cent revenue of your India consumer health business came from “power brands”. How do you see this going forward?

We want to increase our sales of power brands. We think the market potential for these brands is high, and there is a lot more room to grow. This year we should touch Rs 1,000 crore from the OTC business as a whole, and now we want to focus on profitability. The marketing campaign costs the same, so as the scale increases, we benefit.

We remain excited about the business. We could not justify the kind of prices and valuations we saw for some of the newer brands. Some companies may have found them reasonable. Investors want to see Ebitda. So that’s life. When we did the maths to see whether to invest to grow our own power brands or buy new brands, we realised we should focus on our own brands.

We launched 100 new products in the last three years, and we would focus on organic growth. About 16 per cent of sales come from new products, and around 16 per cent comes from e-commerce. When we started we focussed on building offline distribution for the first 10 years. When e-commerce and modern trade became big, we started focusing on that.

Covid-19 helped us as people switched, and e-commerce and modern trade is all about giving choice to the consumer. We did a lot of work to launch our products on e-commerce, get a certain scale and then take it offline. E-commerce is still small, around 15 per cent of overall retail. The feedback loop is faster in e-commerce. In the old days one used to launch in one rural market, one urban market, then take one zone, and by the time one went national it was already a year. E-commerce now gives faster feedback on products.