Sun Pharmaceutical Industries is in the process of closing its merger with Ranbaxy. The former’s chief financial officer (CFO), Uday Baldota, talks to Digbijay Mishra on what’s ahead. Edited excerpts:The US Federal Trade Commission’s nod for the Sun-Ranbaxy merger has come.
How are you approaching the integration?
Till the merger closes, we cannot integrate. What we are working on is preparing a complete integration plan, on which we are working for the past few months. Execution will only happen once the merger closes.
How is the divestment of Indian assets, as suggested by the Competition Commission of India, shaping?
It’s progressing. We will divest American assets, suggested by FTC, to Torrent. For India, the work is on. In totality, it’s a small size in terms of value but every crore is important.
How do you plan to solve Ranbaxy’s domestic plant problem?
Within Ranbaxy, the highest priority is to get back into compliance (with US regulatory standards) and that remains the focus. It’s difficult to plan an exact time line when regulatory agencies are involved.
We do not know what more we will be asked to do but we still believe that it’s possible.
We are working to close the merger soon. It’s a question of going through steps. We don’t see any major issues any further.
What happens after the merger?
This is basically an opportunity to broadbase our platform, where we can grow the business more as a combined entity, rather than either of us would have done independently. For instance, in emerging markets, our reach and penetration would increase strongly. (Our presence in the) US would also get stronger. This will be coupled with double the number of doctors, with the largest share of prescriptions, in India. All these things are great opportunities to drive growth. These are all potential levers.
We need to first put our businesses together and do thorough groundwork. What we have indicated to the market is that there is a $250-million number on synergy that we are looking at in Year-3. Ranbaxy has its inherent growth rate and Sun has its own. Logically, we would like to make one plus one more than two. That’s the basic requirement of a merger. Otherwise, it doesn’t make sense.
But how will you go about reviving Ranbaxy?
The question is not about reviving but to get growth in the combined entity. There are parts of the business that are not growing and we need to address that. If there are costs at which the business is not sustainable, it will need to be worked upon. I am reasonably sure that Ranbaxy provided an opportunity to look inside Sun, also as there are parts of business which we can improve. We need to look at it as one unified self.
Ranbaxy has a certain growth rate and we need to find ways to help Ranbaxy grow faster. After merger, there will be no Ranbaxy business. The US would be around $2 billion, emerging markets would be close to a billion and India will be more than a billion. Combined businesses we would like to help grow better. So, it’s not so much about revival; it gives a broader platform. My manufacturing network widens. In Europe, where I have little presence, it gives me more access. Internally there would be, over a period of time, cultural integration and we would like to have a combined legacy.
What about brand Ranbaxy? Will it cease to exist?
The parent company will go away but if there are numerous subsidiaries of Ranbaxy, all those will continue. We need to find a transition over a period of time. Some businesses would like to retain that name and in some way and that also works well. When it comes to products, they will remain as they are.
How would the integration impact Sun in the long term?
We don’t have large manufacturing outside India and the US. Brazil, Mexico, Hungary are modest. There is a complex change happening with respect to manufacturing, as in where we will get large sites even outside of India and the US. That’s the first change. As we know, pharma products are country-specific. So, there are plants oriented towards specific markets and depending on our growth projections for markets, we will need to decide about the supply of those products from specific plants. We want to do be better than today. We just don’t set targets in numbers which creates pressure and
you start taking short-cuts.
Is there appetite for more inorganic growth?
We also bought a company after Ranbaxy. We will continue to acquire. We might not buy something really big immediately because we need to make this work but smaller deals will continue. Acquistions are an integral part of our strategy.
How much time would you take to integrate?
It is difficult for us to say. as we are doing such a large integration for the first time.
There has been a strong exodus of people from Ranbaxy. Does that bother you?
It’s unfortunate that people are leaving. This merger is all about growth and for growth, we need to have good people. Ranbaxy has good people, the inherent strength is still good. The idea is to have those people on board in the combined entity. When people leave, it’s a negative for us. The idea is to put the best of the two organisations together.