Monday, April 27, 2009


· India’s Pharmaceutical Sector Growing Fast Both In Domestic And Exports Markets

· Up To 50% Lower Costs Make India An Attractive Production Hub

· A Highly Fragmented Domestic Market Calls For Consolidation In The Industry

The Indian pharmaceutical industry is characterised by the twin benefit of strong domestic consumption growth on the one hand and robust export opportunities on the other. At the same time, the intense competition in a highly fragmented market is posing a great challenge too. The stage is set for the next phase of growth accompanied by consolidation. This stage will see traction owing to the global meltdown of equity markets that has brought the valuations at very attractive levels.

With the increasing need of capital for sustaining the growth momentum or even sustaining in the business due to the highly competitive environment and limitations on the ability to introduce new drugs due to the new patent regime, a number of Indian pharmaceutical companies will find it difficult to pursue the growth path on their own. Such companies will be ideal candidates to join hands with strong multinational companies. The acquisition of India’s largest drug-maker Ranbaxy Laboratories by Daiichi Sankyo Company Limited, one of the largest pharmaceuticals companies of Japan last year is an apt example in this context.

The foreign pharma companies already operating in the Indian market are also trying to increase their stakes in the domestic subsidiaries, which indicates the growing importance of this market for them. In the last week of March, Swiss firm Novartis International AG and Pittsburgh-headquartered Mylan Inc announced plans to significantly hike equity stakes in their Indian subsidiaries. The leading multinational pharmaceutical companies are increasing their focus on emerging markets such as India and China in their growth plans, as pointed out by a global survey of top 15 pharmaceutical companies conducted by Ernst & Young, one of the largest professional services firms.

Export Becoming Major Growth Driver

Pharmaceutical industry in India is showing a good resilience in the current phase of slowdown both in the domestic and export markets. But export has become an important growth driver for this industry in the recent years with more than 50% of the revenues coming from overseas markets, particularly the U.S. and Europe. The Global recession has impacted India’s drug exports only marginally, which is estimated to reach at $8.25 billion in the financial year 2008-09 against the earlier estimate of $8.97 billion, according to the Pharmaceutical Export Council of India – an organisation set up by the Government of India. The growth rate of pharma exports in 2008-09 was estimated at 23%. The industry, however, is expected to have slightly lower growth in exports as revealed in a survey by the Federation of Indian Chambers of Commerce and Industry (FICCI), one of the oldest industry chambers in the country with a nationwide membership of more 1,500 corporates and 500 chambers of commerce and business associations. The FICCI survey has predicted a 16% increase in India’s pharmaceutical exports, while most of the other industrial sectors expect a negligible growth or contraction during 2009-10.

Exponential growth for Indian pharma exporters is expected as many high value drugs are going off-patent. It’s estimated that over the next five years, the global pharmaceutical companies are set to lose about $100 billion in sales due to such drugs going off-patent. Indian companies are well poised to take advantage of this situation, owing to the competitive advantage in generic drugs business. Basic production cost of drugs in India is up to 50% lower compared with the established markets such as the U.S. and the costs of U.S. Food and Drug Administration (FDA or USFDA) approved plants in India are 30%-50% lower.

Indian companies are continuously increasing their presence in the U.S., a $440 billion market that constitutes around 47% of the global pharmaceutical market. In February 2009 alone, the Indian companies (along with their subsidiaries) large and mid-sized, together have secured approvals for 15 Abbreviated New Drug Applications (ANDAs).

Global rating agency Fitch Ratings Ltd., recently commented that the exports of low-cost Indian generics are going to benefit due to the weak global economic environment and the weaker rupee. Similar factors will also generate greater demand for low-cost contract research and manufacturing activities (CRAMS) of the Indian firms.

Strong Domestic Growth

Drug sales to retail consumers in India grew by 9.8% to $6.98 billion (Rs.34,000 crore) in the calendar year 2008, according to research firm ORG IMS Research, a joint venture of AC Nielsen ORG-Marg and the U.K.-based IMS Health. The growth rate in 2008 was lower than 13.4% registered in 2007, due to a dip in the second half of 2008. These figures are compiled from the data collected from wholesalers and don’t include the drug sales through hospitals estimated at about $1.4 billion (Rs.7000 crore) per annum. After a decline of 1.2% in October 2008, the monthly retail drug sales has improved significantly in the following months with the growth rate of 6.8% in November 2008, 13.3% in December 2008, 14.4% in January 2009 and 13.3% in February 2009, respectively.

The domestic market of Indian pharmaceutical industry is likely to register 12%-13% growth in 2009, only marginally lower than the earlier projections of 15% as an impact of macroeconomic conditions, according to ORG IMS Research. The impact of macroeconomic factors is much less on the Indian companies compared to the global peers. In the next 4-5 years, this industry is expected to continue to grow at more than 10% to touch the $30 billion mark by 2020. In the long term, the domestic consumption is expected to keep growing at a healthy pace, because currently India’s healthcare spending is only 5.6% of the country’s gross domestic product (GDP), which is among the lowest globally.

The domestic consumption of drugs is bound to increase as the necessity of drugs will increase with time and they will become more affordable for a larger population. The necessity will increase with the rising population and lifestyle disorders making people more vulnerable to ailments such as cardiovascular diseases and diabetes. Secondly, medicines will become more affordable to a larger number of people as the size of India’s 300 million middle class is rapidly increasing and the income levels are also going up.

Highly Fragmented

The domestic pharmaceutical market is quite fragmented with the top five companies commanding only 22% market share. Cipla Ltd, has become the largest and the fastest growing company among the top five companies, outclassing Ranbaxy Laboratories Ltd. Even the top 20 companies have a total market share of about 57% only in contrast to the global drug market dominated by the 10 largest companies that account for about 40% of global sales.

India’s Domestic Pharmaceutical Market (12 Months Ended January 2009)



( $ Billion)

Market Share


Growth Rate


Total Pharma Market












Glaxo Smithkline




Piramal Healthcare




Zydus Cadila




Total of Top 5




Source: ORG IMS

An Active Sector For M&A And Private Equity Deals

Pharmaceutical, Healthcare & Biotechnology was one of the busiest sectors on the deal street of India in 2008. It was second in terms of total value with $5.57 billion, marginally below the Telecommunication sector which had total transactions worth $5.78 billion, according to a report of consulting firm Grant Thornton. In terms of volume, the Pharma sector had 57 deals, second to 102 deals in Information Technology & IT-enabled Services sector. The $4.60 billion acquisition of Ranbaxy Laboratory, India’s largest drug-maker, by Japanese firm Daiichi Sankyo Co., Ltd was on the top of the table of India’s largest deals in 2008. Out of the total 57 M&A deals in the sector, 17 deals were domestic.

Private Equity (PE) firms have also been active in the pharma sector in 2008 with total 22 PE deals worth $337.41 million. The average PE deal size for the sector in 2008 was estimated at $15.34 million, 20% higher than $12.82 million in 2007. Narayana Hrudayalaya, one of the world's largest pediatric heart hospitals, which received a funding of $100 million, was on the top of PE deals chart of 2008 for the sector.


The Indian Pharmaceutical sector is positioning itself to be among the top five centres of global innovation as the Department of Pharmaceuticals (DoP), Government of India outlines its roadmap for the sector up to the year 2020 (Vision 2020). It foresees investments of about $2 billion annually, under the public-private partnership model.

The initiative will open avenues of growth for global pharmaceuticals companies and fuel the next wave of mergers and acquisitions (M&As) in a market where consumer spending on healthcare increased to 7% in 2007 from 4% of the Gross Domestic Product (GDP) in 1995 and is expected to rise to 13% of GDP by 2015. India also offers the benefits of low cost research and development (R&D), a domain in which it is estimated to capture about 10%-20% share of the world’s R&D business by 2020 from less than 1% currently.

Expansion by global pharmaceutical companies in to emerging markets like India becomes imperative as about $103 billion worth of patented drugs will go off patent in the next few years. This will further hit the already sagging fortunes of global pharma companies which are trying to augment their revenues by acquiring or aligning with companies in the generics business. The acquisition of India’s largest drug-maker Ranbaxy Laboratories Ltd by Daiichi Sankyo Company Limited, one of the largest pharmaceuticals companies in Japan last year, is an apt example in this context. (See our Special Report for an overview of the sector.)

India continues to enjoy a high level of confidence among overseas investors who have invested about $24 billion during the first 10 months of the financial year 2008-09, up 66% compared to the corresponding period last year. In contrast, worldwide, foreign direct investment (FDI) fell 21% last year to $1.4 trillion, estimates the United Nations Conference on Trade and Development (UNCTD).

In the month of January 2009 alone, FDI inflows worth $2.74 billion represented a rise of about 55% year-on-year. China, by contrast, saw a 33% drop in FDI compared to the same month last year as it’s manufacturing-based economy was more negatively affected by tightening global credit, recession and falling corporate profits.

India is expected to close the financial year ended March 31, 2009 with $28 billion of FDI against inflows of $24.5 billion in the previous year. If reinvested earnings of foreign companies are taken in to account, that figure is expected to increase to about $38 billion, up from $34.3 billion in the previous fiscal year.

The G-20 London summit on April 2, 2009, part of the annual forum of the 20 largest economies that convenes to review the global trade and economic scenario, marked the recognition of the central role that the emerging economies will play in the revival of the global economy.

The financial crisis that gripped the global economy since last year is expected to result in a drop of 9% in global trade in 2009, according to the World Trade Organisation estimates. The developed countries’ exports are set to fall by as much as 10%, while developing countries will see a marginal contraction of 2%-3% in their shipments.

The G-20 shunned protectionism across the board to promote global trade and investment. The forum extended a $1.1 trillion for international credit and additional $250 billion through the International Monetary Fund (IMF) as part of the few decisive steps to revive the global economy. This capital infusion will benefit the emerging economies like India and China, particularly in the services exports. The two countries figure among the top 10 in services exports, with China contributing 3.7% at $137 billion closely followed by India contributing 2.8% at $106 billion of the world’s total in 2008.

G-20 itself is a manifestation of emerging economies with more weightage in the global economic affairs, as compared to the G-8, a group of eight largest industrialized nations. Some assertions, however, such as the regulations to curb tax havens, could negatively impact capital flows into emerging economies.

Wednesday, April 15, 2009


Maimed and left gasping for a lifeline, Satyam Computer Services has finally found its new knight in shining armour, Tech Mahindra (TechMa).

The bidding process for the beleaguered software firm culminated on Monday with TechMa emerging as the highest bidder with an offer price of Rs 58 per share. TechMa's price outbid other suitors, engineering giant Larsen & Toubro and private equity player Wilbur Ross, by a comfortable margin. L&T's bid of Rs 45.90 per share and Wilbur Ross' Rs 20, were not even within striking distance of TechMa's deal-winning bid.

The Economic Times

Thursday, April 09, 2009


As many as 47 Indian companies, led by corporate behemoth Reliance Industries and the country's biggest lender, State Bank of India, have made it to the list of world's biggest 2,000 companies by US magazine Forbes.

The Economic Times

Prospects of the Indian Media and Entertainment (M&E) sector estimated to grow to about twice its current size of $11.6 billion by 2013 prompted global media and entertainment companies such as The Walt Disney Company, The Warner Group, Viacom, Inc., Sony Pictures Entertainment, Inc., The Financial Times and the Dow Jones & Co. to enter the market that has grown at a sustained pace of about 15% annually during the last five years by either acquiring a stake or partnering with an Indian counterpart.

Among the most recent expansion plans in India, News Corporation, the world's largest media conglomerate by market capitalization, had announced that it will strengthen its presence in the country by investing more than $100 million to launch six new regional television channels last year.

The potential for growth in India’s M&E sector is underscored by the low penetration base. For instance, the print media with low penetration rate of 38% and the cable & satellite penetration in the country of just about 50% offers a large market that remains to be tapped. See our Special Report highlighting the trends in the sector.

India’s mobile telecommunication services sector has defied the economic recession. The incumbent mobile telecommunication service providers collectively added 15 million new subscribers in the month of January, which is more than twice the population of Finland, home country of largest mobile handset manufacturer Nokia Corp., taking the country’s total tally of wireless subscribers to 362 million.

The world's fastest-growing mobile telecom services market estimated to reach a subscriber base of about 650 million by 2012, exposes the growth potential for global mobile telecom service providers who are not yet present in India. Such service providers are missing out on opportunities to grab a share of the projected mobile services revenues of more than $37 billion by 2012 growing at a CAGR of 18%, while the profitability of their operations in saturated developed markets continue to be under pressure.

The string of investments in Indian telecom companies last year, including, Tata Teleservices Ltd, the telecom services arm of India’s largest private sector diversified Tata Group by NTT DoCoMo, Inc., the largest Japanese mobile telecom service provider of $2.7 billion; Unitech Telecom, the telecom arm of India’s second largest real estate developer Unitech Ltd by Norwegian telecom firm Telenor ASA, world’s seventh largest telecom service provider at $1.36 billion; and Swan Telecom, a start-up GSM telecom service company of a Mumbai-based real estate developer Dynamix Balwas Group by Dubai-based Emirates Telecommunications Corp (Etisalat) at $900 million; as well as South Africa’s largest telecom company MTN Group’s attempts to enter the Indian market – are an indication of the fact that there is ample room to enter this market, at least inorganically.

Of significance is the fact that the government has granted new licenses and spectrum to aspiring operators such as Datacom Solutions a subsidiary of one of India’s leading consumer durables company Videocon Industries Ltd; Loop Telecom, a BPL Mobile Communications group company; S Tel Ltd, joint venture between Skycity Foundations and Telecom Investments (Mauritius) Ltd; among others which are likely targets – but within the regulatory purview as an overseas entity’s stake in the domestic company cannot exceed 74%.

'Cautiousness & Consciousness' have become the catchwords for both investors and the government as India approaches the next General Elections, which are scheduled from April 16 to May 13 amid a worldwide economic recession.

India's challenge is not only to augment its antiquated infrastructure, but also to build new infrastructure to keep up with its $1 trillion economy and the aspirations of its 1.2 billion population that grows by 16 million people each year.

Recognising that good governance and infrastructure are a vital pre-requisite to keep ‘India Shining’ at Gross Domestic Product (GDP) growth of more than 7%, infrastructure development has been accorded key priority for the 11th Five-Year-Plan for the years 2007-2012 and the 12th plan period 2012-2017 with projected investment requirement of $500 billion and $1.5 trillion respectively by the Prime Minister's Committee on Infrastructure.

The interim budget for the financial year 2009-10 announced by the Finance Minister also sets the ground for how the ruling United Progressive Alliance (UPA) will approach the General Elections, announcing that 9% of the country’s GDP will be spent on infrastructure by 2014 (Interim Budget: Continuity Of Growth).