Mr. Gopal Ramourti, Managing Director and Executive Director, Twilight Litaka Pharma Ltd. He is a Chartered Accountant. He has been Managing Director of Twilight Litaka Pharma since April 1, 2007. He has wide experience in the Pharma industry. He is actively involved in Business Strategy, Business Development and Banking and Financial functions of the Company. A remarkable forte of Mr. Ramourti is in identifying and nurturing long term relationships, which has resulted in forging alliances of enduring nature over the years. During his career, he has helped set up and establish several Joint Venture partnerships and collaborations. He has also developed relationships at various levels with the central bank, Finance Ministry and other Government agencies. Mr. Ramourti is instrumental in turning Twilight Litaka Pharma Ltd. into a profitable entity.
Twilight Litaka Pharma Ltd. is an integrated pharma formulations company armed with manufacturing, marketing and distribution capabilities. The Company manufactures drugs and formulations in the form of tablets, capsules, ointment and liquids. The Company’s products cover the major therapeutic segments like Analgesics-Anti Inflammatory, Anti-Asthamatics, Antibiotics, Anti-Bacterial, Vitamins, Haematinics and Cardiovascular Drugs. The Company is currently upgrading its facility to focus on food nutrition products (nutraceuticals). The Company exports its products to over 40 countries across Africa, South America, South East and Central Asia. The Company undertakes Contract Manufacturing for several large companies like Herbalife, Pfizer, Elken, Lupin, L'oreal, Novartis, Cipla, Hindustan Antibiotics, Tianshi, Wockhardt, Emcure, Abbott and Inventia. The Company also has a well established distribution network all over India. It has over 1000 domestic marketing personnel.
Speaking with Hemant P. Maradia of IIFL, Mr. Ramourti says: “Twilight Litaka has an ambitious plan to reach Rs 25bn turnover by FY15.”
Give us a brief update on the company?
The Company was incorporated in 1974. It was then called Li-Taka Pharmaceuticals Ltd. In the year 2005, it was merged into Twilight. The Company’s name was later changed to Twilight Li-Taka Pharma Ltd.
For the first 20-25 years, Li-Taka Pharma was engaged in only contract manufacturing. It used to manufacture a number of formulations. Anti-TB was the major area of focus.
Then we got into the food & nutrition business for Herbalife. In India, we have been doing all the manufacturing for them since 1998.
In the mid-1990s or so, we started manufacturing formulations for the domestic as well as the overseas markets. This business accounted for roughly about 42% of our total revenues last year.
About 5-6 years prior to the merger, ~ 80% revenues of the Company came from contract manufacturing. It is typically a low margin business. It used to yield very low margin for us up until FY06. But, as we moved to our own business, the profitability started to improve.
At the time of the merger, the turnover was around Rs 1bn. We have grown this to Rs 6.6bn over the past six years.
During this period, we grew largely in volumes but more importantly we grew the share of our own business in the total pie. The profitability also went up.
We have four manufacturing facilities. One is in Pimpri near Pune, which is the Company’s oldest plant. The other one is at a place called Vadgaon on the outskirts of Pune. We have one facility in Mumbai while the fourth one is in Himachal Pradesh.
Last year, we bought one of our 100% subsidiaries called Briocia Pharma at Jejuri for Rs 250mn. This is actually our fifth factory.
The addition in production capacity last year, along with this takeover, we are now aiming to touch a turnover of Rs 10bn.
Could you comment on the conversion of warrants at a premium to CMP?
Unfortunately, the media has reported it incorrectly. It was not done by the promoters. A few non-promoter shareholders bought stake in the Company through the conversion of warrants.
These shareholders are all domestic corporates and are very well known to the promoters. They are close associates of the promoters.
These shareholders were allotted 35,00,000 Equity Shares of Rs 5 each at a premium of Rs 81 per share on conversion of 35,00,000 Convertible Warrants.
These investors had picked up warrants at Rs 86 per share. At that time, the market price was between Rs 85-90.
What is the promoters’ stake right now?
Right now, the promoter stake in the Company is at 28%, down from 63%.
What happened was that last year the promoters took some loan against shares for the acquisition of Briocia Pharma. Those shares were liquidated by the lenders after the stock price fell. That’s how the promoters’ holding came down.
The promoters will increase their stake in the Company through the creeping acquisition route. Right now, we are focusing on the business.
Aren’t you worried about low promoter holding?
We are not worried about any takeover threat as the promoter shareholding in the Company is almost 50% along with the associates.
I guess it was an error on our part to raise money by pledging promoters’ stake to lenders. I wish we had taken another route for the fund raising.
We resorted to the pledge shares essentially because our equity raising plan didn’t come through. That process has got delayed. Investors are through with the due diligence. We are in talks with a few investors. Let’s see what happens.
We are going for the private equity route. These are international funds. It all depends on the price at which these funds are looking to enter the company.
What is the absolute debt and debt-equity?
Debt is roughly about Rs 2bn while equity as of March 2011 is ~ Rs 123.5mn. Cash in hand is not large as this is essentially a working capital intensive business.
We are planning to do 3-4 different things. One is to raise equity through the PE route. That capital will essentially be for driving the Company’s future growth. We are working on the fund raising through PE firms.
We also have some real estate on the books. We are hoping to develop some of it over a period of time. This real estate is at Pimpri and Vadgaon. We could monetise these properties and shift production to the new facility at Jejuri.
The money thus raised could be used to pare down the debt.
We could move the Pimpri capacity to Jejuri in the next six months while the facility at Vadgaon will take about two years to move.
What has led to the jump in interest costs?
The increase in the interest cost is partly due to the debt on the books and partly owing to the hike in policy rates announced by the RBI over the past few months.
The debt will reduce if we are able to raise equity. We don’t see the debt-equity ratio going up substantially as we are also making profits. In fact, the debt-equity may actually improve. It is less than 2:1 right now.
We will be comfortable with a debt-equity of around 1:1.
Post the conversion of warrants, the net worth of the Company will also go up.
Tell us about the tie-up with Interpro Healthcare in South Africa?
Interpro Healthcare Ltd. is based in South Africa. It is a group of doctors. Therefore, they can have influence in the sales and marketing of drugs. We will export drugs to Interpro from India. We have already started exporting neutraceutical products to them. These products do not require any approval from the local drug regulator.
We are hoping that we will be able to export chemical molecules as well once the plant inspection takes place. The plant at Jejuri conforms to the MCC, South Africa. They have already visited the plant once. They have asked for some modifications, which we are working on. Hopefully, we will be able to start exports to Interpro from this facility soon.
Once we get MCC clearance, we will be able to access more markets in Africa. The potential in South Africa is huge and the realisations there are also much better compared to the domestic Indian market.
Which are your major export markets?
At the moment, we are present in most parts of Africa, many parts of the former USSR, some parts of North America, Central America and Asia as well.
We are present in 40-odd countries across the world.
What kind of business mix do you see going ahead?
We are looking to reduce the proportion of revenues from the contract manufacturing business. We hope the business mix becomes 50:50 one day.
At the same time, we are trying to improve margins through the sale of value-added products. Most of the contract manufacturing business is domestic right now. We are hoping that we will be able to export these products as well.
Who are your top customers in contract manufacturing?
Our customers for the contract manufacturing business include Novartis, Herbalife, Lupin, Wockhardt, Cipla, Elder Pharma and a few foreign companies.
What about food & nutrition and domestic formulations?
We are very upbeat on the neutraceutical business. We have learnt a lot through our tie-up with Herbalife. At the moment 20-25% of our revenues come from food and nutrition across segments. We hope it will gradually increase as a percentage of total revenues.
As far as domestic formulations are concerned, our strength lies in rural and semi-urban centers. In fact, non-metros account for about 90% of our total domestic sales. Growth rate is much higher there.
What is the guidance for FY12?
We should end FY12 with a turnover of around Rs 8.5bn. In FY13, we should be around Rs 12bn.
Twilight Litaka has an ambitious plan to reach Rs 25bn turnover by FY15. Out of that, Rs 15bn will come from contract manufacturing, Rs 7.5bn from domestic formulations and Rs 2.5bn from exports.
Give us a sense on your margins?
EBIDTA margins in the contract manufacturing space are about 8%. We expect to get about 24-25% in owned business. That’s how the overall margins will improve as we go along.
We are able to get higher margins from the domestic formulations business, primarily because we are present in rural and semi-urban space.
Margins are also better in food and nutrition.
Are you looking to enter new segments?
Gastro and dermatology are the new segments that we are looking at going forward. We will be adding new products in these two segments. We also have new launches in other segments coming up during the October to March period.
Anti-TB is very small today. We are focusing on anti-infectives in a very big way. One-third of our business comes from there; about 20-25% comes from pain management.