FDI in pharma sector - Centrum

MNC pharma companies may increase stake

Our analysis of FDI investments in pharma sector reveals MNC pharma
companies invested over 96% in brown field projects and only 4% in
green field projects. We expect the parent companies of Glaxo SK
Pharma (GSK), Merck, Ranbaxy Labs (RLL), Sanofi India(SIL) and Wyeth
to increase stake in their Indian arms due to attractive valuations.
We expect India to become the manufacturing hub for MNC pharma
companies due to the low cost manufacturing base. Major risks include
an increase in prices of essential drugs by MNCs and gaining control
of niche segments like anticancer, vaccines and injectables in India.

$ Over 96% investment in brown field projects:  Our analysis reveals
that over 96% of FDI investment in India went into brown field
projects and only a miniscule 4% to green field projects. MNC pharma
companies are keen to acquire manufacturing facilities and companies
in the area of anticancer, vaccines and injectables due to global
shortage in their capacities. Moreover, these businesses are available
at attractive valuations.

$ MNC pharma companies may increase stake: MNC pharma companies are
likely to increase stake in their Indian arms due to attractive
valuations and recent liberalization of government policies. Their
stocks are currently available at compelling valuations compared to
FMCG stocks despite their superior margin profile. We expect the
parent companies of GSK, Merck, RLL, SIL and Wyeth to increase stake
in their Indian arms.

$ Indian companies valued at premium: MNC pharma companies paid huge
premiums for Indian acquisitions. Piramal Healthcare (PHL) was
acquired at 9x sales. Daiichi Sankyo (DIS) paid Rs737 per share of RLL
which had an intrinsic value of Rs365. Other major acquisitions
include Matrix Labs by Mylan, Shantha Biotech by Sanofi Aventis, Dabur
Pharma by Fresenius Kabi and Agila Specialties by Mylan.

$ Benefits & risks: We expect MNC pharma companies to benefit from the
vast Indian market, low cost manufacturing base, world class
manufacturing facilities and the pool of skilled scientists. We expect
the parent companies of GSK, Merck, RLL, SIL and Wyeth to increase
stakes in their Indian subsidiaries due to attractive valuations.
Major risks would be monopolization by MNC pharma companies leading to
price rise and shortage of essential drugs. Non-competence agreements
by MNCs could prevent sellers from competing in future.



Thanks & Regards,

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