Being the CEO of a large pharma company has been a rather depressing job for more than a year now. As a host of other sectors hitched a ride on the Sensex's spectacular ride from 5,200 to 7,800 now, the over $6-billion (over Rs 26,000-crore) pharmaceuticals industry sat by the sidelines, bogged down by a remarkable number of negative factors. The change in patent regime, introduction of vat, lacklustre growth in the domestic market, rising R&D and marketing expenses on the back of fierce generics market in the us...never in recent times have drug makers been besieged by such a variety of bad news. (The shocking highlight was, of course, Dr Reddy's Labs' first-ever quarterly drop in topline.)

Now, though, things are beginning to look up due to what is being described by some on Dalal Street as the "anniversary effect". Meaning that after a year where so many things went wrong, there's little that can make things worse for the industry. Actually, that's a rather uncharitable explanation of why investors are once again flocking to Big Pharma stocks. At least since the beginning of last year, it was known that the pressure on generics drugs would be high, given that there weren't enough branded drugs going off patent. What caught both investors and drug makers by surprise, however, was the intensity of price competition. In the case of generics like ciprofloxacin, the launch price was at a steep 95 per cent discount to the innovator drug. Says Dilip Shanghvi, Chairman & Managing Director of Sun Pharmaceuticals: "us generic markets have seen quick and ruthless price erosion, and sometimes the projections that people shared did not anticipate what could happen and factored in all the possibilities as certainties."

Nobody's yet saying that things are hunky-dory in the us (or that the domestic market, growing at 5-odd per cent, will suddenly rev up), but what's helping turn the sentiment positive is the long list of branded drugs that are set to come off patent protection between 2006 and 2008. Says Malvinder Singh, President, Ranbaxy Laboratories: "There is tremendous opportunity in generics, every government is encouraging generics because of significant increase in healthcare costs." If you are looking for a number, $30-40 billion (Rs 1,32,000-1,76,000 crore) worth of branded drugs will open up to generic competition by 2008. Says Giridhar Iyengar, pharma analyst, ABN Amro: "While pricing pressure will remain, the new launches will help take pressure off some of the older products." The net effect could be that earnings on the whole improve.

As more and more companies-both in India and elsewhere, especially China-move into the generics space, the competition will only get tougher. The good news for large Indian players such as Ranbaxy, Dr Reddy's, Cipla and Sun is that they are vertically integrated: they make their own bulk drugs, can manufacture formulations and have R&D capabilities that allow them to come up with more value-added generic copies. That's not something other generic players in the US, like Ivax (now acquired by Israel's Teva Pharmaceuticals) or Novartis' generic arm Sandoz can claim.

So what's likely to happen in the near future is addition of capacities in India by both Indian and foreign drug makers, and a play for acquiring either FDA-certified facilities of Indian companies, or the companies themselves. Recently, there were reports that Sandoz was in talks with Cipla. While the Indian company vehemently denied the reports, its principal owner and Chairman Yusuf Hamied isn't ruling out any of his options. When contacted by BT during his recent trip to Pune, Hamied called talks of a sell-out "rubbish", but added, "What I am telling you is as of today. Who knows what will happen two months, six months or a year from now?" Cipla, where there is no apparent heir to Hamied, had stunned the global drug industry a few years ago by launching anti-retro virals (ARVs), or aids drugs, at rock-bottom prices. Such capabilities are of high value to global generic giants. Says G.V. Prasad, Executive Vice Chairman & CEO, Dr Reddy's Labs: "Not just generic majors, but even the next level of (innovator) companies in the us will look for acquisitions in India."

The bottom line: Like in other Indian industries, pretty soon there will be clear winners and losers in pharma.

-E. Kumar Sharma

AUTO
Total Recall

Like in the US, car recalls are becoming pretty standard in India. Yet, over the last eight years, there have been only four major recalls.

MARUTI 800,
May 1997
India's first passenger car recall, 50,000 of the iconic small car were called in for repairs to a faulty pinion in the steering system.

HONDA CITY,
June 2004
A faulty front dampner forced the Japanese car major to recall 13,000 of its cab-forward City.

HONDA ACCORD,
August 2004
Bravely enough, Honda made a second recall in just two months, due to (among others) a problematic fuel filler cap in the top-end Accord.

MARUTI ZEN,
august 2005
The latest recall, 500 of the B-segment Zen are being called back to workshops to fix a faulty radiator.

-Kushan Mitra

SECOND
That BPO Security Thing Again
There's no let up in foreign media's sting operations aimed at Indian BPOs, but such "exposés" are now beginning to look too formulaic.

Data security: As safe in India as elsewhere

Wannabe investigative journalists around the world have a new hunting ground. No, it's not Iraq or Africa, but India. The formula for instant journalistic fame has become fairly straightforward: Grab a camera, buy a plane ticket to Gurgaon, Pune or Bangalore, and go around waving a wad of dollars until you find a BPO employee who can at least promise to get you confidential data on American, European or Australian customers. Your scoop, like most recently Australian Broadcasting Corporation's, is ready. The Kerry Packer-owned ABC claimed in its Four Corner programme that its undercover reporter had been offered confidential information on 1,000 Australians by an Indian call centre employee in Gurgaon, and the data included, among others, medicare records and passport details.

It's easy to see why foreign media have turned such "exposés" of Indian BPOs into a thriving industry. Offshoring of work to low-cost countries like India has become a huge issue in developed countries such as the US, the UK, Germany and Australia. Every day, thousands of jobs are getting shipped out to India and that, understandably, is upsetting people who are losing those jobs. Therefore, there's a large audience for stories that profess to drive home the perils of offshoring. The channels get their TRPs, the tabloids their rare surge on the news-stands and the audience, more ammunition with which to trash free market dynamics.

We are not for a moment suggesting that BPOs in India are foolproof or that breach of data security should not be taken seriously. On the contrary, customer data are vulnerable and thefts do take place once in a while. But to portray, and then repeatedly reinforce, Indian call centres as being more vulnerable than other BPOs around the world is unfair and an exaggeration. Says Sunil Mehta, Vice President, NASSCOM, the IT and ITEs industry association: "The standards of security and data protection at Indian BPOs are comparable to global standards, if not higher."

Besides, technology is equally vulnerable, be it Gurgaon or Georgia. Consider this: In February this year, ChoicePoint, a provider of identification and credential data, reported theft of data on 145,000 us citizens. In April, HSBC North America asked 180,000 owners of its General Motors co-branded (Master) cards to replace their plastic because transaction data had been compromised.

Ironically, though, industry honchos only expect such exposés to help the Indian BPO industry in the long run. How? Customer anxiety, they say, will keep their own operations on high alert and lead to improvements in their security systems. Says Pramod Bhasin, President & CEO, Gecis Global: "We already have very senior level people responsible for data security and privacy, and integrity and information policies are constantly communicated to employees." That means no cellphones, floppy disks, or even blank sheets of paper (they must be shredded end of work day) are allowed on the shop floor. Says the CEO of one large BPO in Bangalore: "No matter what, globalisation of services is an economic phenomenon and here to stay." Customers elsewhere in the world needn't worry too much over theft of personal data. BPOs in India will protect them zealously. We don't say it out of misplaced patriotism, but simple business logic.

-Supriya Shrinate

The Ads Are Back
It's pouring ads this season.

Boom time: HLL splurged on media like this Surf Excel ad

India Inc. is feeling great and it's letting you know that. Advertising spend, which according to tam Media Research grew 13 per cent last year to Rs 11,800 crore, could surge 20 per cent this year. Sources suggest that around Rs 7,200 crore has already been spent on advertising and marketing in the first half of 2005. "There has been a 20 per cent to 50 per cent increase in spends across the board," says an industry analyst. Who's fuelling the ad boom? The on-the-mend FMCG biggies such as HLL, P&G, Colgate, Gillette and GlaxoSmithKline Consumer (see The Big Spenders), "besides which there has been an increased media demand from new categories like retail, education, financial services, public sector and it", says Sam Balsara, the outgoing President of the Advertising Agencies Association of India. Traditional high rollers such as white goods, automotive and telecom, notes Balsara, have anyway kept up their "tempo".

A surprise spender, however, has been the government. According to industry estimates, the government has already spent Rs 100 crore so far this year, and could double the figure in the second half. Says Devraj Tripathy, General Manager, Maxus, a Group M media buying agency: "The consumer affairs and tourism ministries have already awarded Rs 50-70 crore media duties to various (ad) agencies and by the year-end, the government could end up spending Rs 350-400 crore." That's just a little (Rs 50-100 crore) less than how much HLL, the top spender, is expected to splurge on media this year. Says Sandip Tarkas, CEO, Media Direction: "The (government's) thrust on communication this year is indicative of the economy's pink health." In other words, they are lovin' it.

-Archna Shukla

KBC 2
Newer, But Better?

Old vs new: His charm remains undiminished

It's not quite, like its new punchline says, Umeed Se Dugna (roughly, double the expectation), but Kaun Banega Crorepati (KBC) Ver. 2.0 is actually pulling in more eyeballs. The opening day channel share of Star Plus, which airs the game show, had moved up almost 24 per cent in the prime time, 9-10 p.m. time band, when the KBC was first launched in 2000. But a huge build-up to KBC 2 by Star has taken that figure to 28 per cent. Does it mean that sceptics (there are many across rival channels, media buyers and advertisers) have been proved wrong? Well, yes and no. While the opening day figures do point to a huge pent-up demand for the Who Wants To Be A Millionaire? clone (between 2000 and 2005, over 25 million cable & satellite homes have been added), the proof of the pudding (and of show host Amitabh Bachchan's charisma) will be in sustaining the TRPs. "In 2000, KBC ratings remained high and steady for more than eight weeks before registering a dip," says Sandip Tarkas, CEO of Media Direction, a media buying house. "We have to wait and watch the trend with KBC 2." The international show's second and third runs have tended to lose viewers (by as much as half, sometimes). Will the desi version prove far more durable? We'll have to wait to find out.

-Shailesh Dobhal

Singing The Blues
Squeezed, music industry seeks new ways to survive.

Out of tune: Ringtones and MP3 music may bring the industry in sync

What does an industry do when its revenue more than halves in just five years? First, it thinks of survival, and then growth. That's exactly the state of mind in the Indian music industry, which today is running out of ideas and customers. The industry's revenue is down from Rs 1,000 crore in 2000 to Rs 500 crore and, predictably, only those with deep pockets have managed to survive the squeeze. "It is time to accept the reality that the physical format of selling has taken a beating," says Kulmeet Makkar, Chief Executive, Saregama Music. He thinks the "profit-sharing" model with producers that his company has adopted is the way forward. This ensures that the music companies stick to marketing and distribution, and don't get into risky manufacturing. "We adopted this model for Murder and it paid off," he says. A far cry from the days when the music of K3G was sold for Rs 11 crore and that of Devdas, Rs 13 crore.

With the onslaught of technology in the form of music on the web and mp3 gaining ground, the music industry has lost a huge chunk of revenues. Says Gurmeet Singh, Business Head (Music), Music Today: "There are more people sharing the pie now. Ringtones is a case in point." According to Kumar Taurani, Head of Tips Music, the way forward will be to adopt a downloading model on the lines of iTunes from Apple. "While that is a good model, it will take two to three years before anything emerges," he feels. His company, too, has been through a rough phase. It paid a whopping Rs 8 crore four years ago to buy the music rights to Subhash Ghai's Yaadein, but is said to have lost close to 80 per cent on the investment.

Mass music (film music) is what sells largely in India, and this accounts for two-thirds of the market. Here again the numbers have dropped to just a million units for a big hit like Koi Mil Gaya and that conveys the story. According to Makkar, the future will be about getting in new revenue streams like ringtones on mobiles. Agrees Shridhar Subramaniam, Sony BMG Music India's Managing Director, pointing out that public performances and mobile phones will be where the industry's money will come from tomorrow.

-Krishna Gopalan

ONEUPMANSHIP
Seen A Coke Ad Lately?

Cola ad wars: Coke 0, Pepsi 1

First, it withdrew from news channels, then from cricket and this season, it's nowhere to be seen. We are talking about Coke. To be sure, the cola major did make an appearance on the telly with Aamir Khan's new makeover as Mannu Bhabhi, but it was too brief to make a splash. In contrast, its arch-rival Pepsi has been extraordinarily "bubbly", spending an estimated Rs 50 crore this season (compared to Coke's Rs 20 crore). Why is Coke lying low? It's due to a shift in strategy from mainline to below-the-line marketing, says a spokesperson, but adds that "our market share has remained intact at 61 per cent". Coke's parent, however, is more forthright in accepting that it is facing problems in India. In its quarterly SEC filing, it admits to a drop in sales "due to the impact of price increases to cover rising raw material and distribution costs along with the lingering effects of pesticide allegations in 2004". Back home, Coke is unlikely to release new ads for the rest of the year. Unless, of course, the new President Atul Singh decides otherwise.

-Aarchna Shukla

Dissecting Mumbai's Movie-goer
Shringar Cinemas recently commissioned Mindshare to survey the movie-going audience in Mumbai. The survey threw up six types of the movie buff, vastly different from each other.

It's showtime, folks: Movie-goers at a theatre in Mumbai. Can you spot the types?

Groucho
32% of the Mumbai audience

» Watches movie in a theatre once in three months
» Prefers Hindi thrillers, but also watches regional flicks
» Usually turns up 15 minutes late for the screening
» Watches the movie with spouse/children
» Belongs to SEC A1+/A2, is predominantly male between 25 and 44

Middle-class Housewife
9% of the Mumbai audience

» Watches movie in a theatre once in four to six months
» Prefers Hindi horror or social drama movies
» Arrives 10 minutes before the movie starts
» Watches movie either alone or with friends/spouse/children
» Belongs to SEC B1/B2, is predominantly female between 25 and 34/44 and 55

Geek
27% of the Mumbai audience

» Watches movie in a theatre once a month
» Prefers Hindi action or war movies, but also watches dubbed English flicks
» Gets in five minutes before the movie starts
» Watches movie mainly alone or with friends
» Belongs to SEC A, and is in the age group of 15 to 24

Barbie Doll
8% of the Mumbai audience

» Watches movie in a theatre once in two weeks
» Prefers latest blockbusters, action, children's & animation films
» Usually enters at the time the movie starts
» Watches movie mainly with parents
» Belongs to SEC A1 and SEC C, and is predominantly female between 15 and 19

Western
15% of the Mumbai audience

» Watches movie in a theatre at least once a week
» Prefers watching English action or comedy movies
» Usually enters the hall 10 minutes late
» Watches movie mainly with children and family
» Belongs to SEC A, is predominantly female between 35 and 55

Young Turk
9% of the Mumbai audience

» Watches movie in a theatre once a week
» Prefers English movies
» Gets in 10 minutes before the movie starts
» Watches movie mainly with friends
» Belongs to SEC A1+, and is between 20 and 24