Sun Pharma’s seemingly bold acquisition of Ranbaxy was hailed by several
analysts and some of the corporate heads as they think Mr. Dilip
Shanghvi’s strategy of acquiring poorly performing companies and turning
them around may work this time also. Between 1997 and 2012 Sun Pharma
made 13 acquisitions starting with the purchase of Caraco
Pharmaceuticals. That was the year in which it also bought stakes in two
Indian pharma firms namely Tamilnadu Dadha Pharmaceuticals Ltd and MJ
Pharmaceuticals Ltd. But in the case of Ranbaxy take over, Sun is facing
a different type of hurdle. A belligerent US FDA taking a tough stand
on Ranbaxy’s exports from most of its Indian plants to the US market.
Ranbaxy has been confronting serious issues with regard to exports to the US, its most important market, since 2009. All its Indian facilities exporting drugs to the US have been barred from doing so by the US drug regulator for failing to comply with manufacturing standards. Last year, Ranbaxy also pleaded guilty to felony charges related to drug safety in the US and paid $500 million in civil and criminal fines under a settlement with the department of justice. And its balance sheet has been disappointing for some time. Ranbaxy's consolidated net sales for the year ended December 2013 declined to Rs. 10,604 crore from Rs. 12,253 crore in the previous year and EBDITA to Rs. 1,066 crore from Rs. 2,211 crore. EBDITA
The company's net loss amounted to Rs. 1,012 crore in 2013 as against a net profit of Rs. 923 crore in 2012. The company skipped dividend and its share price declined steadily during this period. Another area of concern for the Sun management will be the handling of huge sales force of the two companies. Sun and Ranbaxy have a combined field staff of about 9,000. Once the merger is completed, many of the sales personnel will end up covering the same doctors, especially in the speciality areas. For Sun Pharma’s plan to turn around Ranbaxy with the operating synergy will have to trim the field force and integrate its supply chain.
Layoffs in the sales force can only help to save on salaries and overheads by way of lower cost of travel, prescription promotion and administration costs. To address all these adverse and sensitive issues may not be that easy for the company management for some years.
Ranbaxy has been confronting serious issues with regard to exports to the US, its most important market, since 2009. All its Indian facilities exporting drugs to the US have been barred from doing so by the US drug regulator for failing to comply with manufacturing standards. Last year, Ranbaxy also pleaded guilty to felony charges related to drug safety in the US and paid $500 million in civil and criminal fines under a settlement with the department of justice. And its balance sheet has been disappointing for some time. Ranbaxy's consolidated net sales for the year ended December 2013 declined to Rs. 10,604 crore from Rs. 12,253 crore in the previous year and EBDITA to Rs. 1,066 crore from Rs. 2,211 crore. EBDITA
The company's net loss amounted to Rs. 1,012 crore in 2013 as against a net profit of Rs. 923 crore in 2012. The company skipped dividend and its share price declined steadily during this period. Another area of concern for the Sun management will be the handling of huge sales force of the two companies. Sun and Ranbaxy have a combined field staff of about 9,000. Once the merger is completed, many of the sales personnel will end up covering the same doctors, especially in the speciality areas. For Sun Pharma’s plan to turn around Ranbaxy with the operating synergy will have to trim the field force and integrate its supply chain.
Layoffs in the sales force can only help to save on salaries and overheads by way of lower cost of travel, prescription promotion and administration costs. To address all these adverse and sensitive issues may not be that easy for the company management for some years.
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