- Regarding the acquisition of Ranbaxy’s 51% stake by Daiichi Sankyo Company Limited my personal opinion is that the top management at the Ranbaxy had the good fortune of demarcating Ownership and Management. Further, Mr.Malvinder Singh had the vision to look beyond the normal horizion to read the future dynamics of Pharma Industry and how Ranbaxy will tackle the same.
Lets get to the Fundas of the deal:
Predator : Daiichi Sankyo Private Limited
Prey: Ranbaxy Labs Limited
Deal Size : $ 4.6 Billion for 51% stake. In INR at INR 42.50 =1 USD the deal size works out to INR 195.50 Billion…..oops. The deal involves complete buyout of the 34.80% stake held by the family in the company. However, Mr.Malvinder Singh will continue to be the MD of the Ranbaxy. Why? The basic funda being that it provides business continuity to Daiichi and also helps them to sail smoothly in the unknown and new Indian Pharma terrain. So, I feel that as Ranbaxy continues to be a subsidiary for Daiichi in the ensuing years and once Daiichi gets the comfort of understanding the nuances of Indian Pharma Industry the Japanese will go in for a management shuffle……got it….the clever business strategy.
Rationale of the Deal:
Indian Pharma market is worth INR 50,000 crores and it has several inherent strengths which make it a low cost manufacturing destination for the Global Pharma players. It’s a known fact that India can manufacture Pharma products at 1/8th of the global prices. Further, the global players have been in the Indian Pharma hunting grounds as their manufacturing costs were increasing and to add to their woes the effluents treatment and the stringent regulations thereof wee pulling down their bottom lines.
Post product patent regime 2005, Indian companies could not manufacture copy cat or manufacture generic version of patented drugs. So, what next? They had wait till a product goes off patent and then pump its generic into the market. However, this is a highle competitive sector….as generic prices decline by 90% once the product goes off-patent….but were still rewarding the Indian Pharma companies.
The way to future for these companies is to get into drug discovery process which would involve billions of $ investments and a long gestation period. Given this fact coupled with the thin global generic margins have put the Pharma companies in a tight spot.
Hence, it would be a win-win situation if the Global MNCs married the Local Pharma ….The Funda is MNCs will have access to world class Indian manufacturing facilities, Low cost production, Huge pool of talented manpower, strong pipeline of generic products. It is estimated that over $ 90 billion worth of drugs are expected to go off patent and this would enthuse the MNCs to scout for strong Indian generic players.The Local Pharma would benefit from the Strong financial muscle of the MNCs and leverage their marketing network for its generic produce and a robust product line of the MNC players. In case Ranbaxy had joine hands with Pfizer, it would have resulted in a huge savings in litigation costs for both the companies for the Lipitor case.
Who wins what in the above deal ?
RANBAXY :
Focus on the generic competencies and emerge as a top generic player in Japan.
Clear its debt of approximately of $ 400 MM of Foreign Currency Convertible Bonds (FCCB). This would result in saving of the interest costs and thereby improve its Net profit margins.
The deal would result in a surplus funds of approx of INR 3000 crores and this would act as a war chest to acquire further generic space either in India of Japan.
Benfit from Daiichis strong product pipeline.
DAIICHI:
Instant market access to merging markets like India and to over 60 countries through Ranbaxy’s marketine network from the existing Daiichi reach of 22 markets.
Access to India’s inherent strength and Ranbaxy’s thereof low cost advantage coupled with world class manufacturing facilities.
Move up the world Pharma company standing ladder to 15th from the current 22nd. So what..? Greater bargaining power and enhanced visibility.
What were the other such big deals in India?
Deal worth INR 3428 crore involving acquisition of 71.50% stake of Matrix Labs Ltd by Mylan INC during 2006.
Fresenius SE, a German based company, acquiring 73.27% stake in Dabur Pharma for INR 880 crores.
Who will be the next targets….Crystal gazing?
Aurobindo Pharma Limited
CIPLA
Orchid chemicals and pharmaceuticals Limited.
What will Mr.Malvinder singh do with the INR 10,000 crores accruing from the sale of the family stake?
Into the group concerns…
Which are those?
Religare
Fortis Financial services.
Look out for more action in this space…..as Pfizer plans to bid higher for the remaing stake held by other players…excluding the 34.80% agreed to be sold by Mr.manvinder singh. Anyone can make a counter offer for the non-promoter stake within 21 days of the open offer at a comparable price
Why Pfizer ?
The US-based company is battling Ranbaxy in about 18 countries on patent rights of Lipitor, the largest selling cholesteral drug in the world. Lipitor has annual sales of $13 billion. In most countries the patent on the drug will expire starting 2011.
Ranbaxy has won favourable verdicts on Lipitor in many of the geographies including in the US, the largest drug market in the world, which accounts for 28 per cent of the global generic market estimated at $72 billion.
Friday, June 13, 2008
Ranbaxy Dials Japan for Daiichi !!!!!
Thursday, June 12, 2008
RBI Unleashes Hike in REPO to fight Inflation
RBI Increases the Repo rate by 25bps to 8% with immediate effect.
The RBI has whipped its weapon of REPO hoping to tame the monster of inflation.
Let us understand the Fundas behind the above mechanism of Repo fighting the inflation…..
Fundas First:
INFLATION: The general upward trend in prices across the economy is Inflation. In Funda terms it means Too Much Money chasing too few goods….So what happens the Value of the goods increases. ….Lets take the example of real Estate…If 100 people are bent upon buying a property at certain layout with 60 dwelling units/ plots…..what happens the prices of these units go up on account of heightened Demand. ..got it any questions..relate the same with a Movie hall with 450 seats and 750 people waiting outside the hall frantically looking for tickets …the prices of the movie tickets will be jacked up…but this is not inflation as the prices are not official and the said increase does not sustain over a period of time.
REPO : The repo is the rate at which the RBI lends to banks, injecting liquidity into the economy. An increase in policy rates would essentially mean that banks too would increase their lending rates and hence make the consumer think twice before availing a loan. This reduced credit offtake will thus bring down the money supply and control inflation — if the inflation is demand driven…i.,e too much money driving too few goods
But what we are witnessing today is an inflation driven more by scarcity of supplies than by a rise in demand. For example, limited land and water resources, low grain stock reserves and increasing diversion of food for bio-fuels, have all constrained availability of food and have taken global food prices to unprecedented highs in 2007-08. A rise in interest rates now will be punishing, as it might accelerate the pace of the slowdown thus affecting economic growth.
CRR & SLR :
CRR, or cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation. CRR is currently at 8.25%.
Besides the CRR, Banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements.
Mechanism: The government securities (also known as gilt-edged securities or gilts) are bonds issued by the Central government to meet its revenue requirements. Although the bonds are long-term in nature, they are liquid as they can be traded in the secondary market.
The hike in repo rather than the reverse repo rate is a signal to banks that they should be managing their own liquidity amicably without going overboard on lending.
The RBI has whipped its weapon of REPO hoping to tame the monster of inflation.
Let us understand the Fundas behind the above mechanism of Repo fighting the inflation…..
Fundas First:
INFLATION: The general upward trend in prices across the economy is Inflation. In Funda terms it means Too Much Money chasing too few goods….So what happens the Value of the goods increases. ….Lets take the example of real Estate…If 100 people are bent upon buying a property at certain layout with 60 dwelling units/ plots…..what happens the prices of these units go up on account of heightened Demand. ..got it any questions..relate the same with a Movie hall with 450 seats and 750 people waiting outside the hall frantically looking for tickets …the prices of the movie tickets will be jacked up…but this is not inflation as the prices are not official and the said increase does not sustain over a period of time.
REPO : The repo is the rate at which the RBI lends to banks, injecting liquidity into the economy. An increase in policy rates would essentially mean that banks too would increase their lending rates and hence make the consumer think twice before availing a loan. This reduced credit offtake will thus bring down the money supply and control inflation — if the inflation is demand driven…i.,e too much money driving too few goods
But what we are witnessing today is an inflation driven more by scarcity of supplies than by a rise in demand. For example, limited land and water resources, low grain stock reserves and increasing diversion of food for bio-fuels, have all constrained availability of food and have taken global food prices to unprecedented highs in 2007-08. A rise in interest rates now will be punishing, as it might accelerate the pace of the slowdown thus affecting economic growth.
CRR & SLR :
CRR, or cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation. CRR is currently at 8.25%.
Besides the CRR, Banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements.
Mechanism: The government securities (also known as gilt-edged securities or gilts) are bonds issued by the Central government to meet its revenue requirements. Although the bonds are long-term in nature, they are liquid as they can be traded in the secondary market.
The hike in repo rather than the reverse repo rate is a signal to banks that they should be managing their own liquidity amicably without going overboard on lending.
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