A thumbs-up from analysts

Is Mumbai-based Sun Pharma the new engine that the accident-ravaged vehicle Ranbaxy needed? Analysts believe so.

The $4-billion cashless deal, under which Sun Pharma has decided to fully acquire Ranbaxy, analysts say is a win-win situation for all concerned — Ranbaxy, Sun Pharma and Japanese firm Daiichi Sankyo.

For Sun Pharmaceutical it means doubling of revenues almost overnight. For Daiichi, it means exiting a troubled partner, while Ranbaxy gets a fresh lease of life.

“It’s a very positive move,” said Sarabjit Kour Nangra, Angel Broking’s VP-Research (Pharma), adding that this would help the fragmented Indian pharma sector grab a chunk of the global generic medicine’s space.

The consolidated entity, with estimated revenue of $4.2 billion, is now projected to be the fifth-largest generics manufacturer globally and India’s largest by a wide margin.

Good track record Angel Broking says the Ranbaxy-Sun combine would be the largest pharma entity in the country with a market share of about 9 per cent, with sales of $1.1 billion, ahead of Abbott which has a market share of 6.5 per cent.

While Ranbaxy’s troubled past has weighed down the Japanese Daiichi, Sun Pharma’s past record of acquiring, running and turning companies towards profitability is seen as a big plus. Nangra said, “Sun has a record of turning around companies with lost profitability.”

DG Shah, Secretary-General, Indian Pharmaceutical Alliance, said in terms of valuation, Ranbaxy is a very attractive buy for Sun, which is getting the assets at almost half the price that was paid by Daiichi.

Besides the benefit of size — the two together will now have operations in 65 countries with 47 manufacturing facilities across five continents — the deal also heralds a new age of mergers in the India pharma space, analysts say.

“This is a trend-setter and going forward we’ll see more consolidation happening, particularly among large players,” said Shah.

Shah further said that this deal provides the much needed cultural change that the ailing Ranbaxy needed. Cultural differences were so great that Daiichi could not manage the issues Ranbaxy got into, he said.

Sujay Shetty, Leader, Pharmaceuticals and Life Sciences at PwC India, also agreed with Shah.

Ranbaxy has been a difficult asset, Shetty said adding this deal reflects a very good opportunity for Ranbaxy, Daiichi and Sun Pharma, as well as the Indian pharmaceutical sector as a whole.

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