After the doyen, what next at Dr Reddy’s Lab?

With the passing away of K. Anji Reddy, Founder Chairman of Dr Reddy’s Laboratories (DRL) on Friday, industry-watchers are keen to see how the promoter family will weather new challenges coming their way. Will there be more of the same, as in the family? Or will there be an injection of outside professionals?

Ever since Anji Reddy started distancing himself from the day-to-day affairs of the pharma major around 2011, speculations have been rife about members in the promoter family having different inclinations and pulling in different directions. The family, though, has constantly put a lid on talks of a stake sale, denying any such move.

Fuelling the speculation were some ground realities in the domestic pharma industry. The unexpected had happened in 2008, when promoters of Ranbaxy, another home-spun major, sold out to Japanese major Daiichi Sankyo for over $4 billion.

And as challenges in the domestic market got steep, the grapevine was abuzz again with talks of a stake sale in DRL to a multinational company, and GlaxoSmithKline was said to be the likely candidate. The two companies went on to strike an alliance of a different kind.

Nevertheless, something was afoot at DRL. And recent developments point to changes in the $1.6-billion DRL. Anji Reddy, who never missed the annual shareholder meeting in 27 years, was conspicuous by his absence in 2012. The company attributed it to health reasons.

And as Anji Reddy restricted himself to research, his son K. Satish Reddy, Managing Director, and son-in-law G.V. Prasad, Chief Executive Officer, steered the ship through fresh challenges. But, they too started skipping media conferences in the last few quarters. And the company justified this to ushering in more professionalisation.

Meanwhile in 2012, Anji Reddy and family members transferred their stake to APS trust. While Anji Reddy, had transferred 39.99 per cent (out of 40 per cent) of his stake in the promoter-holding company, Satish Reddy transferred 16.61 per cent (29.98 per cent) and G.V. Prasad moved 5.43 per cent (8.89 per cent) stake.

‘streamline succession’

The transaction was termed as part of a private arrangement to ‘streamline succession’. As on December 2012, the promoters had 25.56 per cent stake in company.

To buttress the injection of professionalism, Dr Reddy’s has started giving greater visibility to key professionals in the company and also rotating their roles. For example, Umang Vohra, Chief Financial Officer, was moved to the US, while Saumen Chakravarty, global head-HR, took over as CFO. The family members have also become less visible in the media.

Dr Reddy’s “is in good hands”, says Cipla Chairman Y.K. Hamied, a long-time friend of the late Anji Reddy. Ernst and Young Partner Muralidharan Nair recounts his interaction with Anji Reddy, a couple of years ago. He had said that there would be no sell-out in his life-time and had high hopes of the next generation, Nair recalls.

But there can be no crystal ball gazing, because a sale is finally a business decision of valuations, that is taken within a small core group of family members. For the moment though, a succession plan seems to be in place, observed another consultant.

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