NIcholas Piramal's Ajay Piramal: Outsourcing with a difference

Ajay Piramal, chairman of Nicholas Piramal India Ltd, wants none of the headaches that come with fighting for marketshare in the US generics market. Filing lengthy applications or fighting expensive court battles with patent holders, for example. He thinks he can take a vastly different route and yet get a sizeable piece of the global pharma pie. And that route looks a lot like BPO, with some differences. Consider: NPIL's recent deal with the US-based Advanced Medical Optics (a leader in opthalmic surgical devices and eye care products) involves contract manufacturing neutralising tablets, form fills, and seal solution products at the US FDA-certified plant at Pithampur, in Madhya Pradesh, by early 2005. The contract is for five years and is expected to add $25 million (Rs 115 crore) to NPIL's topline each year until 2010. "This is a trend that is bound to grow into a big opportunity for the Indian pharma industry," says Dilip Shah, Secretary General of the Indian Pharmaceutical Alliance.

Some companies are already on the pharma outsourcing bandwagon. These include Divi's Labs, Indswift, Morepen Labs, and Lupin. However, it is the first time that an Indian company will be manufacturing a finished formulation for a global player. Says Piramal: "The alliance is a long-term one, for supply to global markets, which includes technology transfer to Nicholas Piramal and the products have IPR. This is the first such alliance by an Indian pharma company." Why India? For one, it is cheaper than rival destinations in Europe and also has greater process chemistry skills compared to manufacture-savvy countries like China. According to Kotak Institutional Equities Research, global outsourcing in pharma could touch $48 billion by 2007. Expect a decent amount of it to come by Piramal & Co.'s way.

-Swati Prasad

Husseinomics

Stockmarkets: The Saddam effect

Japan's stockmarket index, the Nikkei average jumped almost 3 per cent following news of the capture of missing-in-action Iraqi dictator Saddam Hussein. Early on Monday morning (at 0930 hrs gmt), UK's FTSE was up nearly a per cent, Germany's DAX by 1.5 per cent, and France's CAC by 1.4 per cent. Most analysts said the increase was a natural consequence of Hussein's capture, but warned that its effects would be short-lived. The arrest significantly reduces the threat of future terror attacks against the UK and the US although it doesn't really mean the end of hostilities (as evident in the explosion of a car bomb outside a police station in Baghdad).

Both, and the fact that the continued presence of American and British troops in Iraq had a price attached to it, may have had a role to play in eroding positive sentiment some. American indices, the Dow Jones Industrial Average and the Nasdaq Composite, will likely mirror the movement of their European counterparts when the US markets open for trading later (this magazine went to press late on Monday night, just as this was happening). It isn't that Hussein's capture has no positives: it reduces the chance of attacks on oil pipelines within Iraq and increases the probability of the country becoming a stable source of black gold (the price of crude dipped following news of the arrest).

-Roshni Jayakar

STREET WISE
Don't Trust Your MF
They may not be the most ideal vehicles for stockmarket return after all.

These are feel-good times, but that doesn't mean the cloud of uncertainty that's been hovering over the global economic landscape will blow over in a hurry. These are times when mantras one cherished and believed were cast in stone turn topsy-turvy overnight, and what was considered a truism till yesterday can easily fly in the face of contemporary wisdom. Take for instance investments in mutual funds. A year ago, the chances of anybody sticking his neck out to say that mutual fund investing is rubbish were as high as notorious Rolling Stone Mick Jagger being knighted.

But indeed the Stones front man will for the remaining part of his youth be known as Sir Mick. And the same mutual fund that over the years has been recommended to death by personal finance advisors, fund managers (obviously), and us humble hacks (of course) as the safest route to stock-ownership is today the subject of derision and suspicion. A number of big-ticket funds in the US have come under the microscope, and the New York Attorney General is checking out whether funds like Janus and Bank of America allowed big institutional clients to trade their funds after market hours. Now late trading isn't just a US phenomenon; there are quite a few practitioners of this illegal practice in India too. Back home, mutual fund high-jinks haven't reached scandalous proportions, but late trading, insider trading, and front running aren't exactly unheard of words in the Indian fund lexicon.

It may be more common these days to knock funds and their managers, but when the founders of The Motley Fool make a "Case Against Mutual Funds," you know it's time to sit up and take notice. Now David and Tom Gardner have very good reasons for rubbishing mutual funds-they want to push their own stock advisor-but you can't argue too much with their reasoning. For instance, they argue that "mutual funds force you to own bad stocks''. Why? Simple. The fund will spend perhaps a tenth of its corpus on buying up the best stocks in the market. But there will come a time when it gets orders to be fully invested. What does it do? It buys into dubious stocks because the fund has reached its limits in the good ones. Result? You own a portfolio that's 10 per cent good, 50 per cent suspect, and 40 per cent trash.

Indian markets may be booming today, but then in such a market you don't need to be Einstein to spot a multi-bagger. Find me a fund that's consistently making money over the long term, and I'll try to find you a good reason for Mick's knighthood. I know they're out there (the good funds and the reasons for knighting Jagger), but if David and Tom ever thought of making "fools" of Indian investors, they'd have found at least one subscriber.

-Brian Carvalho