Financial Daily from THE HINDU group of publications
Friday, Feb 17, 2006
Dr Reddy's still game for acquisitions: CEO
C. R. Sukumar
Hyderabad , Feb.16
AFTER signing the 480-million euro (Rs 2,550 crore) deal to acquire the German drug major Betapharm Arzneimittel GmbH in one of the biggest overseas acquisitions by an Indian pharma company, Dr Reddy's Laboratories Ltd says it is still open for more acquisitions in the global market.
By acquiring Betapharm, the company will emerge as the second largest Indian pharma company after Ranbaxy in turnover. As the gap between the top and second largest Indian pharma players will remain very thin, market analysts expect that further acquisitions along with organic growth would enable Dr Reddy's to emerge as the leader in the Indian pharma market in the near future. In this context, Dr Reddy's Vice-Chairman and CEO, Mr G. V. Prasad, told Business Line that the company is still actively evaluating the gaps and also looking at acquisition targets. Excerpts of the interview:
Are you going to say `enough' for the acquisitions or would you still keep your options open for such opportunities?
We are still looking at inorganic options. Based on the strategy and the evaluation of gaps, we will try to fill the gaps through inorganic growth. Apart from the organic build-up of the pipeline, we keep the options open for acquisitions.
Since Betapharm doesn't have a manufacturing base, how would it help you?
We wouldn't buy it for manufacturing. In fact, manufacturing would have been a liability for us because of the high-cost economy. In fact, it suits us wonderfully. We don't have to close down any plant. We just have to manufacture and send from here. We intend to keep the existing supply chain intact.
What are the major benefits that you expect from this acquisition?
Germany is the largest generics market in the world after the US. So, it is an important market for us. Betapharm is the fourth largest player in the German market. It is also the fastest growing generics company in the German market space among the top-ten drug companies. For all these reasons, it is a good acquisition for us. It immediately gives us a critical mass in Europe. It gives us size, product portfolio and pipeline.
While we have been focused on the US market all these days, the acquisition of Betapharm now gives us quick access to the European market without wasting time on building organically. The acquisition not only gives us an entry vehicle, but also a leading market position and a portfolio of products.
These are short-term benefits. But what long-term benefits are you looking at?
In the long-term, Betapharm would be a vehicle for launching Dr Reddy's products in the German market in particular and the European market in general. The R&D capabilities and low-cost manufacturing of Dr Reddy's, combined with a leading market presence and a powerful sales organisation in Germany, will drive the growth of the company in Germany initially and in Europe consequently.
How are you going to fund the acquisition?
We have some cash and also took some borrowals. Going forward, we will find ways of raising money. We haven't figured how, what and when. A decision would be taken at the next board meeting.
The cash reserves we have now (around Rs 950-crore) would be exhausted with this acquisition. We will look at raising funds further so as to have more financial comfort.
How do you justify the acquisition cost of 480 million euros for a company of a 164-million-euro turnover?
It is not sales alone that needs to be taken into consideration. You should look at profits, profitability and earnings before interest depreciation and tax (EBIDTA.) If you look at global benchmarks in acquisitions, the multiples of are about 12 times of EBIDTA. Our acquisition of Betapharm is well within that range. Of course, it is definitely not a low-cost acquisition like our Roche acquisition. But the market is different this time. It is now branded business and we have the sustainability of margins here.
Would the acquisition cost impact your debt burden and earnings?
No. The acquisition is earnings-accretive. The profit generated from Betapharm will more than pay for the interest costs of acquisition.
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