The Hindu Business Line : `Entry into regulated markets will be our focus'

BUOYED by the success in roping in a major foreign equity fund, Newbridge Capital, recently for pumping in funds of over Rs 600 crore and also bagging a major global order from the Clinton Foundation for the supply of anti-retroviral (anti-HIV) drugs, Matrix Laboratories Ltd (MLL), the Hyderabad-based Rs 417 crore pharmaceutical major, has embarked upon a major debt-retiring programme.

The company also proposes to deploy a part of the funds raised from Newbridge Capital towards research and development (R&D) says Executive Vice-President, Corporate Finance, Mr C. Ramakrishna. Excerpts from an interview withBusiness Line .

How do you perceive the major factors that helped you successfully rope in a major foreign equity fund to make substantial investments into the company?

The success of Matrix can largely be attributed to teamwork coupled with strong and innovative leadership . That factors that made many funds look at Matrix seriously include Business Model (sticking to manufacture of active pharmaceutical ingredients), R&D achievements (success of Citalopram and filing of 19 process patents within a shot span of time), professional and transparent management, pace of decision making particularly with reference to acquisitions of Medicorp Technologies and Vorin Laboratories and successful and smooth integration.

The other factors were rapid up gradation of facilities. Facilities were upgraded to US FDA level within a short span of two years. One facility with US FDA approval and second facility inspection is complete and formal approval is expected soon and one more facility is being upgraded to US FDA level. Refusal to sell the company's intellectual property rights to a Danish multinational in respect of Citalopram has also helped us attract the attention of funds.

Where are you going to deploy these funds?

The funds raised through preferential issue would to be utilised for retirement of long-term debt, corporate R&D centre, working capital needs for anti HIV drugs, and general corporate requirements including possible acquisitions.

What benefits can the stakeholders expect from these funds deployment?

The financial position of the company would strengthen substantially and the book value would grow dramatically. Interest cost would go down practically to nil level and thereby the net margins would improve further. Investments in R&D centre would yield long-term benefits to the company and offers opportunities in contract research segment also. The company would be able to pursue its anti HIV business aggressively and this is expected to contribute significantly to both the topline and bottomline. The benefit that would accrue to the company due to inorganic growth shall be elaborated once the plans gets crystallised, if any, in this direction.

How were you managing to post substantial growths both in topline and bottomline in the recent past? How do you view the company's relatively large dependence on few products like Citalopram?

The company has recorded phenomenal growth quarter after quarter in the past 18 months. Various factors have contributed for this success story. They include success of development and marketing of Citalopram. This has contributed for the substantial jump in exports particularly to regulated markets where the margins are fairly attractive. Another factor is inorganic growth in terms of acquisitions of Medicorp and Vorin. The third factor is expansion of the product base and particularly significant growth achieved in anti-retroviral molecules.

As reported by us, the main emphasis of the company is entry into regulated markets where the margins are attractive. Toward this endeavour, the company is planning to introduce nearly 25-35 products in US markets in the coming three to five years. The intellectual property rights developed by the company by filing nearly 19 process patents related to 10 different molecules would strengthen its efforts for successful entry of these products in regulated markets.

The company is also giving lot of emphasis on enhancing its contract manufacturing business both with innovators and generic companies. In FY 2003, contract manufacturing contributed merely two per cent of the turnover and which is expected to grow to about 7-8 per cent during the current financial year. The goal of the company is to reach about 30 per cent level in two to three years time in this segment.

Anti retroviral molecules are also expected to contribute significantly to topline and bottomline. However, Citalopram, which has contributed significantly till now for both topline and bottomline is expected to play its pivotal role in the coming years also. With the entry into US markets in the current calendar year, the quantities are expected to improve significantly and absolute sales values are expected to be maintained.

Are you contemplating any significant changes in the business model in view the onset of full compliance to patent regime in India from next year?

The present business model has been drawn keeping the ensuing patent regime in consideration. The emphasis on regulated markets and exports is part of this strategy. Very modest growth rates are assumed in domestic market sales in the coming years as per the existing business plan. However, efforts are being made to increase the value of the business within the existing business model.

The joint venture promoted by the company with German partners for development of dossiers for the European markets is one such step in this direction. This business model offers revenues from sales of dossiers, assured API sales and probably sharing of profits of finished dosage form.

What measures are being implemented towards better working capital management, increasing internal accruals and reducing the debt and interest burden?

The company gives lot of emphasis for management of inventory and receivables in an efficient way.

It is the declared policy of the company to make company debt free at the earliest and deploy surplus funds in a profitable way.

It is also clear that the company would not get into the areas of stock market investments and other speculative avenues.

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