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The success story of Sun Pharma
May 25, 2007
For a company that started in 1983 with just five people and five products, it's no mean achievement that Sun Pharma today commands the largest market capitalisation of Rs 21,271 crore (Rs 212.71 billion) in the pharma universe.
Thanks to a strategy that focuses on niche segments such as psychiatry and lifestyle drugs, the company has raced ahead, with its business growing four-fold between 1999-2000 and now, with revenues of Rs 2,237 crore (Rs 22.37 billion).
The story goes that the reason chairman and managing director Dilip Shanghvi decided to manufacture medicines for psychiatry, when he set up his first unit at Vapi in Gujarat, was that the number of psychiatrists was few and so it would be easier to reach out to them rather than sell to a whole lot of general physicians, which would require a large field force.
Whatever the reason, Sun, from the very beginning, has focussed on the high-margin chronic care therapy products that have made the company very profitable.
Together with a head for numbers, Shanghvi -- who started life as a wholesaler of pharmaceutical products in Kolkata where his father ran a business -- has a knack for turning around companies.
Most of his acquisitions have been of distressed assets. Known to be extremely conservative, with his feet firmly on the ground, 51-year-old Shanghvi has desisted from overpaying for assets or getting carried away by bids from peers, preferring instead to bide his time.
That's possibly why Sun hasn't made any big acquistions since it first bought into the Detroit-based Caraco Pharma in 1987 and took over, over a period of time for $50 million. Initially, the Caraco takeover seemed to be a wrong move -- it was in the red for several years -- and the Sun management perhaps miscalculated the timelines required to sort out some of the US FDA issues that Caraco faced.
Shanghvi, however, persevered and finally Caraco is making money. Industry watchers are convinced that Sun's more recent takeovers, including Valeant and Able Pharma, too will soon turn profitable.
Sun Pharma's buyouts have been well thought out. In almost every instance the company has managed to diversify into a new area. When it acquired Tamil Nadu Dadha Pharma it gained entry into the oncology space; with Milmet Labs it was able to acquire expertise in ophthalmology, while with Valeant it penetrated the controlled substances segment.
The story is much the same with its latest acquisition,the Israel-based Taro, which Sun has bought for an enterprise value of $454 million. The $300 million generics player, which has a subsidiary in Canada, is a strong contender in the dermatology segment which accounts for more than 50 per cent of its revenues.
Taro is strategically a good fit for Sun because, as the soft-spoken and down to earth Shangvi says, it will help Sun tap into the former's customer base in Canada, Europe and US and sell Caraco's existing portfolio of products to them. Taro may not be in great shape financially -- it made a loss in 2006 -- but then Shanghvi should not have too much trouble turning it around.
When Sun Pharma first started selling its products on a national scale, way back in 1987, it ranked a low 108 on the ORG list. Today, with a domestic market share of 3.2 per cent, it is ranked number six. The numbers tell the story: whether it's building a profitable business or creating wealth for his shareholders, Shanghvi's done a great job.
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