Ranbaxy Deal Sparks M&A Talk for Indian Pharma

The sale of the Indian drugmaker to Japan's Daiichi could dampen the spirit of other companies with global dreams

The historic acquisition of the country's largest pharma company, Ranbaxy Laboratories, by Japanese major Daiichi Sankyo may change the Indian pharmaceutical landscape forever.

The deal will bring in new drugs from Daiichi's portfolio into the Indian market, and tempt Indian pharma majors, particularly generic manufacturers hitting a plateau in overseas markets, to sell out and realise attractive valuations of the kind that Ranbaxy has secured.

If the 5% rise in Daiichi's stock price on the Tokyo exchange, following the merger announcement, is anything to go by, the Japanese company is likely to turn more competitive in the global market, absorbing Ranbaxy's low-cost manufacturing expertise.

Post the buyout, Daiichi Sankyo will be the second largest pharma company in India with about 5% market share in the Rs 33,000 crore domestic pharma retail market, closely following domestic major Cipla.

The deal will also provide Daiichi Sankyo the platform to launch its innovator products in India at competitive prices. Recently, the Japanese major had tied up with GSK India to sell its hypertension drug, Olmesartan Medoxomil at one-fifth price in India. The deal may expedite the company's plan to bring more of its proprietary products to India and also use the low-cost manufacturing facilities in India.

According to ChrysCapital MD Sanjiv Kaul, an ex-Ranbaxy executive and a sector analyst, the deal may dampen the spirit of other Indian pharma majors who have global aspirations. "Commercially, it is an awesome deal. However, Ranbaxy was the all-conquering Indian hero and should have been the last man standing instead of being the first to capitulate. A huge positive for Ranbaxy but a negative for Indian pharma."

He added that the acquisition may dampen the motivation of other aspirants who want to emulate Ranbaxy's success in the global pharma industry.

Sujay Shetty, head of Life Sciences, PriceWaterhouseCoopers said the deal has discovered the valuation of Indian companies. Promoters will find it difficult to get the same kind of valuation at all times and the sector may see more deals, though not immediately. "Daiichi Sankyo is an interesting combination of innovator and generic product basket. At some point of time, the merged entity may itself become a takeover candidate of global pharma majors, " he added.

To some industry observers, promoters of other Indian pharma companies should take a cue from Ranbaxy's move. Ranjit Kapadia, Head of Research (Pharma), Prabhudas Liladhar said: "The valuation is about 20 times of Ranbaxy's EBIDTA and about 4 times its total sales. Its a great deal. Other Indian promoters should realise that at the right place and at the right time, they should divest their stake instead of clinging on for emotional attachment."

Even as Indian companies have been on a active acquisition mode globally, there has been also been off and on rumours of global companies planning to acquire Indian majors, such as Cipla, Aurobindo and Shasun Chemicals. Recently, the Burman family exited the pharma business by selling its entire 65% stake to German company Fesenius Kabi.