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IIPM’s 36th Glorious Year of Academic Excellence

Malvinder Singh, who will remain CEO of Ranbaxy and also the Chairman of the board, commented exclusively to 4Ps B&M, “It was an emotional decision, but in the interest of the organisation and its long term sustainable growth, I had to take this decision.” It is natural for even the coldest of business owners to have emotional attachment to their business, and the Singhs have been associated with Ranbaxy for 3 generations. And corporate governance zealots will hail this as a triumph of the philosophy of separation of ownership from management. After all, the owners must think in the best interests of shareholders and sell at an opportune time when the valuation is good.

But if we consider it from cold business logic, one wonders if the company really needed to don Samurai armour to tackle global challenges in the pharma sector. After a tough 2005 & 2006, Ranbaxy actually had a great year in 2007 with a turnover of Rs.47.8 billion (yoy growth of 19%) and PAT of around Rs.6.2 billion (yoy growth of 62.33%). Hardly the state of affairs you would expect in a company that is about to be acquired. Even analysts admit they did not exactly see this one coming.

In defence of his decision, Singh asserts, “I strongly felt that the time has arrived to make the next big leap to put the company in a new orbit and a higher growth trajectory… (the deal) puts us on a new and much stronger footing to harness our capabilities in drug development, manufacturing and global reach.” In addition, it gives them access to the Japanese market, which is a resounding opportunity for the pharma sector, given its aging population.

Says Shetty, “Generics industry is getting tougher in another five years, with rising litigation costs, lots of drugs going off patent and R&D getting tougher.” Ranbaxy’s stock, which has been floundering for quite a while now in the Rs.300-400 range, was trading at a level of Rs.581.85 on June 17. Sanjay Singh, Associate Director, Corporate Finance Group, KPMG, voices a similar opinion, “Generics’ margins are getting squeezed, taking a toll on the revenue and profitability of large generic companies that have not built sustainable NDDS and NCE businesses.” In addition, he feels that FCCBs, which were raised to fund past acquisitions were nearing conversion, and that would have brought down promoters’ stake in Ranbaxy anyways. In comparison to pharma, there are businesses like healthcare and financial services (where the Singhs already have stake through Fortis and Religare), which are growing at a much faster rate than pharma generics.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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