Mumbai, Oct. 26: The Big Boys of pharma are turning out to be the savvy dealmakers on the Street.
The promoters of pharmaceutical companies have been raking in the moolah lately and have started to diversify into new areas to hedge their bets as the environment for the generics drugs business and research turns uncertain and challenging.
Sudhir Valia’s move to ally with Norwegian telecom company Telenor to operate telecom services in India is just one more instance where the medicine men have started to branch out into sectors that have nothing to do with active pharmaceutical ingredients (APIs) or finished formulations.
Valia is not alone in venturing into telecom. Ajay Piramal of the Piramal group, who sold his formulations business to Abbott in 2010 for $3.7 billion, has entered into a host of new areas. In August last year, Piramal Healthcare purchased around 5.5 per cent of the equity of Vodafone-Essar from ETHL Communication Holdings for Rs 2,856.95 crore. Piramal subsequently ramped up his holding in Vodafone India to 11 per cent.
He also ventured into the finance business by setting up Piramal Finance that comprises two non-banking finance companies (NBFCs). The net result of these actions was that Piramal Healthcare had since then been no longer considered as a pure play pharmaceutical company and instead dubbed a diversified entity. And that’s why the company was renamed as Piramal Enterprises.
Even Dilip Shanghvi has been diversifying into new areas. Last year, he made an investment in a power project in his personal capacity. “As a promoter of Sun Pharma, Shanghvi receives a lot of dividend income and this has to be invested somewhere,” said an industry source while explaining the rationale behind his action.
Malvinder and Shivinder Singh, erstwhile owners of Ranbaxy, have been increasing their presence in finance after selling the drug maker to Daiichi Sankyo.
Experts say that even though the industry is generating a healthy amount of cash, promoters are not sure of the returns they will obtain if the money is reinvested in the core business.
“On the one hand we have an extremely competitive generic business where more multinational companies are keen to enter India. And on the other, drug research involves a lot of risk,” said an analyst.
However, the stock markets were disappointed by Valia’s move. On a day when shares of Sun TV Network and CESC reacted negatively to news of unrelated diversifications, the Sun Pharma stock also closed in the negative territory. On the BSE, it closed 1.38 per cent lower at Rs 684.60.