Dr. Parvinder Singh may be no more, but his name will always live on as one of the first Indian entrepreneurs to develop a global vision. A second generation corporate leader, Parvinder expanded Ranbaxy's operations to more than 40 countries. The upshot-Ranbaxy is today a net forex earner, with exports to over 40 countries. It has JVs/subsidiaries in 14 countries, marketing offices in six other countries and a licensing arrangement in Indonesia.

Exports, mainly antibiotics, have grown at a CAGR (compounded average growth rate) of around 28 per cent over the last five years. That's a scorching pace. And although the bulk of exports are in comparatively low-value bulk drugs, the proportion of formulations is expected to rise significantly over the next three years. Cifran, for instance, has already proved to be a leading product in China and Russia. Ranbaxy will soon be able to increase penetration in the USA and UK markets as a result of its acquiring pharma companies in New Jersey and Ireland.

Theseinternational operations were not built in a day. The company has certainly come a long way from its origins in 1961, when it was incorporated as a private limited company. It commenced operations in March 1962 at Okhla (New Delhi) in collaboration with a European pharmaceutical company. In 1966, Bhai Mohan SIngh (the father of Dr Parvinder Singh) bought up the business of the European company and was responsible for steady growth in the earlier years.

However, it was not until 1990-91 that Ranbaxy started being acclaimed for its research. During that year the company made headlines with the success of the complicated synthesis of an antibiotic drug, Cefaclor. US drug major Eli Lily was so impressed by Ranbaxy's ability to resynthesise the molecule, that it decided to enter into two JVs with Ranbaxy. One was for research to be done in India and the other was for marketing its products in India. This venture opened the door for the other overseas operations of the company. Table 1 gives an idea of some ofthe overseas operations.

Dr Parvinder Singh had a long-term vision-that of being a long term generic player in the world market. He went about realising his dream systematically. The company classified the global markets into three categories-advanced, emerging, and developing-not from their state of economic growth, but seen from the perspective of growth prospects for a generic drug company. This classification led to focussing attention on the emerging markets. The result was that the markets of China, Ukraine and CIS showed growth rates of 20 per cent on a much higher base as compared to those in advanced and developing markets, which witnessed a small marginal growth rate. However, a few problems remain. The continuing Russian crisis and decline in prices of anti-infective bulk drugs globally will squeeze margins. It will still be some time before oversees operations start paying. Ranbaxy's USA operations will take a couple of years to break even and expects to achieve critical mass of $150 million by2002.

Till 1997-98, total returns from overseas operations were negative at $3.8 million. The overseas operations have also brought down the returns on capital employed and the networth. The company's ROCE fell from 21 per cent in 1993-94 to 16 per cent in 1997-98. To fund these overseas operations the company had gone in for a $100 million GDR issue in 1994-95 along with other instruments such as preferential allotment of warrants etc. The high premium of these doubled the networth of the company from Rs 643 crore to Rs 1,286.4 crore. Obviously the returns on networth fell from 32 per cent in FY 1993-94 to 14 per cent in FY 1997-98.

But simultaneously the huge inflow of equity funds brought down the gearing of the company from 1.32 in 1993-94 to less than 0.4 in 1997-98. With 40 per cent of income coming from exports and depreciation benefits of expansion, the company's tax rate fell from 15 per cent in 1994-95 to mere 7 per cent in 1997-98, justifying the repaying of debt, without having an effect onearnings. Ranbaxy's international operations have also helped the company to cut cost of production by half in some of the key bulk drugs--6APA, 7ADCA, fluoroquinolones and cephalexin. Because of international operations in 40 odd countries, capacities are higher, which reduces unit cost of production.The lower cost of production also helps domestic operations. With 19 per cent growth in domestic sales in 1997-98, the company has not neglected the Indian operations. The company's forte continues to be antibiotics (more than 50 per cent of turnover) wherein it has progressively launched newer generation products.to maintain high sales growth. Its top three brands, all antibiotics, are amongst the top 10 in the domestic formulations market. The limiting factor is DPCO coverage at about 40 per cent. Table 2 gives an idea about the marketshare of the major brands of the company.

In spite of having leading brands in most of segments, the company has lost the number two position in domestic sales to Cipla. Withinternational operations on the verge of giving decent returns the company is keen to rake up its marketshare in the domestic market. Ranbaxy has adequately protected its turf in generic markets by going for those generics which are very difficult to synthesise and which, at the end of the patent period, tend to invite a maximum of two to three players.

Naturally, shareholders have been handsomely rewarded. The growth rate in the price of the scrip on an average has been 25 per cent over the last five years. Today the company stands in the unique position of having a balanced mix of finance, marketing and R&D strengths to start earning higher returns on all its assets and that would give a significant jump to both the topline and the bottomline of the company.

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.