FDC Ltd (FDC) has consolidated its position in the last 3-4 years. The company has major presence in oral rehydration salts, ophthalmic, antibiotics, dermatology, hemostats and ENT. It has created strong brands like Electral over the years and is aggressively expanding the market penetration by doubling the sales force in the next 18 months. In an interview with Atul Rastogi and Mukesh Singh of India Infoline, Mr Mohan Anand Chandavarkar, Chairman and Managing Director, discussed in detail the future strategy of the company.
Mr. M A Chandavarkar, Chairman and Managing Director of FDC
Can you brief us on the journey of FDC in the last five decades, its major achievements and driving force for the success of the company over the years?
FDC started its business in 1936 as an importer of formulations, medical equipment and specialized infant foods. In 1949 we set up our first manufacturing unit with the objective of manufacturing indigenous formulations and absorbent cotton wool. In 1963, we entered into the ophthalmic therapeutic segment, in which we command 20% market share at present. We have one of the best product portfolios in the ophthalmic segment catering to almost all-possible eye ailments.
In 1972, FDC entered into oral rehydration salts (ORS) with Electral. The product was introduced as a substitute to IV fluids and it has become a household name in the last 25 years. We started this project in a small setup at Jogeshwari with an initial capacity of 4000 packs per day and today we have a separate manufacturing facilities at Nashik and Waluj with total capacity of 2.2 lac packs per day. Today, Electral has an almost OTC status.
In 1978, we started manufacturing bulk drugs at our newly constructed plant at Roha. We started with manufacture Diazepam, Metronidizole, Tinidizole, Trimethoprim, Hydroxy ethyl and Theophylline. Later on we shifted focus to high value low volume drugs such as Flurbiprofen, Timolol Maleate and Salbutamol suphate, mainly the bulk drugs, which were required for captive consumption and also had export potential.
In 1983 we started our foods division. Today this division is better known as nutraceuticals. In the developed nations of Europe and US, nutraceuticals have become a major market and we foresee this trend to come to India also. FDC has launched few innovative products in this segment and many are in the pipeline. For FDC, nutraceuticals is going to be the focus area and we foresee tremendous growth potential in this area.
In 1989, we setup a state of art manufacturing facility at Waluj, Aurangabad. This plant has UK MCA approval for sterile dosage forms, which is a major achievement for us. In 1996, We came out with maiden public issue with a premium of Rs90 to set up the formulation plant at Nashik, part payment of two Form-Fill-Seal (FFS) machines besides modernization/ expansion/ integration of existing manufacturing facilities and R&D centers. Today Nashik plant manufactures ORS formulations.
In 1998, FDC established another manufacturing unit for solid dosage form at Goa with the objective of manufacturing selected products going off patent in the near future for the international market.
What is the management structure of the company? Who are the key persons in the management both in terms of strategic decisions and day to day operations?
Well, at present I am the Managing Director of the company. We have a management team of highly qualified professionals, who head the various functions ? operations, marketing, and finance. We have an employee strength of 1,200 with more than 250 in the field.
Could you elaborate in detail about the company?s presence in various therapeutic segment ?
We have presence in 11 therapeutic segments, in which 3 segments contribute more than 50% of the turnover. The contribution of various therapeutic segments as % of turnover is as follows:
% of sales
What is your growth target for the next 3 to 5 years ? How do you plan to achieve the goal ?
We have set target to grow by 20% per annum in sales for the next 3 years. Export sales as % of turnover is expected to increase from present 16-17% to 25% in the next 3 years. In the last 2-3 years, we have expanded and modernized our manufacturing facilities, which is enough to meet the increasing demands for the next 2-3 years.
Now, the focus is on to increase penetration in the market. Today, we have around 250 medical representatives (MRs) covering only 60,000 doctors in the country. There are around 3.5 lac doctors accessible in India and our coverage is quite less as per the industry standards. Our products have very good acceptance in the medical fraternity. We have not yet realized the potential of our existing products. So the major focus in the next 2-3 years will be on the expanding the market.
In the next 18 months our field force expansion program is targeted towards coverage 1.2 lacs doctors. The company has full fledge training department to ensure continuous development program for better caliber of field force. The new MRs will be given proper training and will be appraised before they enter the marketplace.
You are almost doubling your field force? At the same time you manufacture all bulk drugs in-house, while the industry trend is to outsource the bulk drugs and do only value addition at the formulation stage. Will not there be adverse affect on the bottomline ?
See, the new field force will cost us incremental Rs25mn to Rs30mn per annum but sales increase will be more than Rs450mn in the next three years with a reasonable assumption that MRs remain as cost center in the six month of their job. Moreover, these incremental sales will be from the existing quality products, which are already well established brands in the domestic market.
Again the material cost as proportion of sales at 41% is one of the lowest in the industry. All our manufacturing facilities are state of the art and almost automated. With the increase in volume sales, raw material cost will be maintained at the same level. We expect to increase our PBT margin (as % of sales) by around 2% every year over the next two years.
Can you elaborate on the presence in the international market at present ? What is the company?s export strategy to tap the huge generic market opening up in the next 10 years?
Our products are registered in more than 13 countries at present. Our major export destinations are Europe, Canada, USA, Japan, Middle East and Africa. We export bulk drugs and formulations to these countries and drug master files are updated every year.
We have formed a joint venture with group of professionals in UK to export our ophthalmic range of formulations (3 products) in the next 3 to 4 months. Almost 90% of the regulatory work (product dossier, registration with the UK MCA etc) are already done. In this JV, FDC has 68% of the stake and the group has rest 32%. We are also working on some of the anti-fungal formulations, which are expected to go off patent in the next couple of years. By the time, we expect our Goa plant to be approved by MCA UK. Besides we will keep on increasing our export of ophthalmic dosage formulation to high margin markets of Europe.
What is the R&D structure/ capability of the company at present ? What is the focus area of R&D?
Our R&D activity is divided into 4 divisions and altogether around 50 scientists are working in these divisions. These four divisions are in the area of formulations, nutraceuticals, chemical synthesis and biotechnology & genetics. We have 15 scientists in formulations, 6 in nutraceuticals, 15 in chemical synthesis and 15 in biotechnology division. The biotechnology team is working on oncology (anti-cancer) formulations and these drugs will take at least 1.5 to 2 years to hit the market.
As a domestic pharmaceutical company what are your views on the price control regime ? Should the government continue with DPCO in the larger interest of the poor mass or should it be discontinued in order to boost the profitability of the industry which in turn will encourage the domestic players to invest more in R&D activities ?
We need to have liberal pricing policy if the government wants the pharmaceutical sector to invest heavily in the research and development, maintain international quality standards and emerge as a truly knowledge based industry.