Private equity is fueling SME growth

COVER STORY/ PHARMA INDUSTRY

 Possibilities are enormous. Exports, domestic market, contract manufacturing are all playing fields for SMEs feels Hitesh Gajaria, chartered accountant and leading pharma analyst with KPMG.

Do you think contract manufacturing or loan licensing system can be a long term option for SMEs?

Contract manufacturing can be a sustainable business model as it offers certain unique opportunities to Indian pharma sector. With the new product patent regime, there is severe pressure on large domestic pharma companies to focus on new molecule research and development for long-term survival and growth.

Large companies, therefore, need to establish stronger linkages with smaller companies to outsource ancillary activities, so that they can sharpen their focus on core areas such as R&D, sales and marketing. Also the global generics industry is facing tremendous pricing pressure forcing global pharma companies to explore actively more cost effective destinations. And with drugs worth $45 billion going off-patent in the next three years, this trend is only expected to increase in the future.

India is fast becoming a global outsourcing hub as our cost of manufacturing is 40-45 per cent of other developed markets. Hence, contract manufacturing business in India is expected to grow manifold and can be a significant growth driver for the SME players.

Could you sight some success stories of pharma SMEs?

Considerable SME pharma players have shown very strong grown trends. For instance, Arch Pharmalabs, Wanbury, Plethico, Mankind Pharma, Ind-Swift, etc are some examples of companies that have grown exponentially within a short span of time.

While the entire SME sector is reporting strong growth rates, some companies are growing at rates above industry average. This can be attributed primarily to strong vision and entrepreneurial spirit of the management coupled with managerial expertise brought in by the private equity investors.

Do you foresee IPOs from pharma SMEs to fund their expansion plans?

Of late, the pharma SME sector is seeing increased private equity/angel investors participation. Private Equity is viewed as a creative mode of funding as the PE firms also lend their managerial expertise and experience to the company. In addition, it can also improve its corporate governance standards, increase its credibility and instill confidence in the company's stakeholders before it files an IPO. Hence this trend is expected to continue in the future.