CEO Malvinder Singh is on overdrive

Malvinder Mohan Singh, Chief Executive Officer and Managing Director, Ranbaxy Laboratories, is on a shopping spree. In just 10 days he's bought four new businesses: Belgium's seventh largest generics company Ethimed for around $50 million (Rs 225 crore), one of Romania's largest generics companies, Terapia, for $324 million (Rs 1,458 crore), GlaxoSmithKline's unbranded generic business in Italy, and the us-based Senetek's patents, trademarks and automated manufacturing equipment for auto-injectors. And Singh quips: "This is just the start."

With approvals to raise $1.5 billion (Rs 6,750 crore) in equity (of this $400 million or Rs 1,800 crore was raised through a recent issue of foreign currency convertible bonds, whose proceeds were largely used to fund the current acquisitions) and $1.1 billion (Rs 4,950 crore) in debt, Singh can, indeed, afford to splurge. And he can't afford to waste too much time. "Expansion in Europe is the need of the hour for Indian pharma companies," says Sunil Mehra, Senior Vice President, Healthcare Group, DSP Merrill Lynch. To be sure, Indian companies have to look beyond the us, the biggest and the fastest growing pharma market accounting for around $245 billion (Rs 1,102,500 crore) of the total $500 billion (Rs 22,50,000 crore) global pharma industry.

"Para-IV filings (challenging patents) are now being contested tooth and nail in the us, thereby raising the cost of litigation," points out Urmil Negandhi, pharma analyst, Parag Parikh Financial Advisory Services. Ranbaxy, in fact, lost a litigation for Pfizer's Lipitor in the US and the UK in 2005. Besides, pricing pressure in generics and increasing R&D costs are also adding to woes, he adds. It was thanks to these factors that Ranbaxy's profit-after-tax plummeted 66 per cent to Rs 182 crore in 2005 against 2004.

Analysts point out that Europe, a $14.2 billion (Rs 63,900 crore) generics market that is growing faster than the branded industry, is a huge opportunity. That explains Dr Reddy's recent $570 million (Rs 2,565 crore) acquisition of betapharm of Germany, for which Ranbaxy was also in the fray. Analysts, though, say that the Terapia and betapharm buyouts have been far from cheap. Ranbaxy paid four times Terapia's 2005 sales and 11.6 times EBITDA (earnings before interest, tax, depreciation and amortisation) whereas Dr Reddy's had paid three times the sales and 12.6 times EBITDA. "In comparison, recent generic acquisitions in European Union have been around 2.6 times sales," says an analyst from a leading i-bank.

Singh, however, argues that his new deals have to be seen in a different light. "These acquisitions provide Ranbaxy a strategic presence in the European and CIS generics market," he says, adding: "Terapia's acquisition gives us a strong foothold not only in Romania (a $700 million or Rs 3,150 crore generics market growing 30 per cent annually), but also an entry point into Europe." This acquisition has made Ranbaxy the top generics player in Romania with around 14 per cent market share. Adds DSPML's Mehra: "The new deals fit well into Ranbaxy's plans. It, for sure, looks in a better position to achieve its target of $5 billion (Rs 22,500 crore) sales by 2012."