While the pharma sector is one of the better tracked and appreciated sectors among domestic industries, a few companies, despite several unshakable strengths, are not counted among the blessed. Take Nicholas Piramal Ltd (NPL) for example. Even though the stock has been appreciating in recent days, there is no real perceptible interest from the general investing community or even among people who track pharma stocks, with the possible exception of the EM Warburg Pincus Fund which recently consolidated its presence with a 9.7 per cent stake in the company.Even the recent spin-off of the company's glass division into a subsidiary and subsequent sale of a 40 per cent stake in that company which brought in Rs 118 crore into NPL barely sparked enthusiasm within market circles. The fact that the company has grown strategically through a series of acquisitions to position itself among the top 10 pharma companies in the country also does not seem to cut much ice with investors. But if the logic of some pharmaanalysts is to be believed, there could be a lot of latent value in Nicholas Piramal. For one, realising the need for critical mass in the size of its operations, the Nicholas Piramal management has chosen to grow aggressively using diverse means.
This could be by way of acquisition of brands (such as Lactocalamine which was acquired from Duphar Interfran), outright purchases of companies (Sumitra Pharma and Boehringher Mannheim) or by managing to acquire marketing rights (through a creation of joint ventures such as those with Reckitt and Colman and Boots Plc for marketing brands such as Disprin, Dettol, Sweetex and Lactocalamine). These alliances have made NPL formidable in the sense of the portfolio of products that it can access, which gives the company its competitive strengths. More importantly, NPL's strengths lie in the products that have been licenced to companies (by the parent MNC companies) that it took over such as Roche Products and Boehringer Mannheim, where the Roche brands today generate asmuch as 40 per cent of revenues for NPL. But the reason a number of companies including Reckitt and Colman India have chosen to enter into an alliance with NPL for marketing OTC products is the distribution network that it possesses which becomes invaluable for achieving volume growth for OTC products that face a lot of competition and where reach of the product in addition to brand strengths makes a lot of difference.
For example, the marketing joint venture between Nicholas Piramal and Reckitt and Colman is expected to fetch revenues of Rs 250 crore in 1999.
But as far as the stock goes, industry watchers say that besides the huge interest shown by EM Warburg Pincus, there is almost no other interest, from FIIs or otherwise, in the stock. And the market logic for this interest by the Warburg fund is that it is more strategic (something like Morgan Stanley's interest in Bharat Heavy Electricals) in the sense that in the post 2005 scenario the predominant shareholding in the company could pass into thehands of an MNC, something very similar to what is being expected by the market for Cipla.
