What will be the impact of the transfer of marketing and sales of its pharma business? A report
Last week Bayer announced that it was restructuring its pharmaceutical business by setting up a new joint venture to take care of sales and marketing of all its pharma products. This seems to be contrary to the parent's policy of concentrating on the core businesses of crop protection and pharmaceuticals. Although Bayer India is upgrading its pharma unit in Thane at a cost of Rs 30 crore.
However, the latest move has been driven by the fact that Bayer India's pharma business has not achieved critical mass to make it a self sustaining profitable activity. It contributes just 13.5 per cent to the total turnover. Globally, Bayer AG has a 2.1 per cent market share in pharma. While in India, it has an extremely small market share of 0.5 per cent and has very few products in its portfolio. Not only are volumes low, the margins have also been under pressure since 60 per cent of its drugs are under DPCO.
In its product range, Incidal, an antihistamine, was a household name for treating allergies, but, it has now been withdrawn from the market. The company has recently launched a cetrizine formulation under a similar name Incid-L. In 1996, Bayer launched Baycip, a ciprofloxacin based brand where Ranbaxy's Cifran is the market leader. In both cases, it has been a late entrant. The anti-malarial Resochin and anti-fungal Canistan and Baycort are a few other prominent brands.
In all, there are about 13 brands whose licensing agreement has expired and the rights lie solely with Bayer Industries, the holding company of Bayer AG in India. All these will now be marketed by the joint venture (JV) and Bayer India will be used only as a manufacturing base. For this, it will get a fixed return, insulating it from competition. Its focus will be on manufacturing more value added formulations. This also means that the benefits of a brand success in case of a new launch will not fully accrue to Bayer India in the future. Currently, it is making efforts towards seeking good manufacturing practices (GMP) certification for the Thane plant in order to boost exports. And although Incidal has been taken off the shelves, mebhydrolin napadisylate, the bulk for this brand is still being manufactured for its global operations.
Agrochemicals and consumer care products together contribute 61-64 per cent to the total turnover and Baygon, the mosquito repellant is its flagship brand. Recently, Bayer launched Baygon Genius, a liquid vapouriser in the mosquito repellant segment where pricing will be a crucial factor. Solfac is another residual spray used for malaria vector control. The insect control market is estimated at Rs 400 crore and is a high growth area. So, Baygon and its extensions will be the revenue earners in future.
In crop protection, methyl parathion, the technical grade form based Metacid 50 is a leading brand. Oxydemton methyl, and fenthion are some other technical grades Bayer makes.
Methyl Parathion is largely used in cotton and rice crop protection. So far, Bayer enjoys a monopoly in the domestic market and exports the product as well. Compared to monocrotophos which is in oversupply, this grade has a good demand and the raw material, phosphorus trichloride is available at competitive prices. Consu-mption of herbicides in India being low compared to international standards, Bayer has entered herbicides. In 1997, it introduced Goal.
In rubber chemicals, although Bayer has 30 per cent market share, it is suffering from low margins. Rubber chemicals industry is reeling under low international prices and low import duties. The offtake was low as the tyre industry was not doing well. Around 23 per cent of its turnover comes from this division.
In the year ended December 1997, sales grew by a marginal 5.8 per cent and net profit rose 7 per cent only. Since 30 per cent of its raw material is imported, the recent rupee devaluation must have pulled down the margins further. It has been facing severe working capital problems as well. The average collection period went up from 57 days in 1995 to 90 days in 1996.
But considering its long term prospects, at Rs 1692, it looks attractive. It seems to be on an uptrend although the volumes are extremely low.
