Mr. Ashok Shinkar, Director Corporate Finance, Wanbury Ltd

“We are targeting Rs10bn topline in the coming years.”

April 15, 2009 12:00 IST | India Infoline News Service

Wanbury Ltd has a strong presence in domestic branded formulations. Wanbury?s major thrust area also lies in Active Pharmaceutical Ingredient (API) and Contract Research and Manufacturing Services (CRAMS). It has presence in Spain through its branded formulation business - Cantabria Pharma S. L acquired in 2006. Wanbury has Plants at Patalganga (Maharashtra), Tarapur (Maharashtra) and Tanuku (Andhra Pradesh) of which 2 are US FDA approved and also of EDQM standards. Wanbury products are manufactured under cGMP Guidelines. Wanbury Ltd. is the world?s largest producer of Metformin, a diabetes management product. In addition to Metformin, Wanbury boasts of a strong product portfolio which includes Salsalate, Glucosamine, Mefenamic Acid, Tramadol, Amitryiptyline, Promethazine, Sertraline, Carvedilol, Ibuprofen, Gabapantene etc. Created from the merger of Pearl Organics Ltd. and Wander Pvt. Ltd., Wanbury sells to leading global generic players in regulated markets with three of the top five generic players in the US as customers.

Mr. Ashok Shinkar, Director Corporate Finance, Wanbury Limited, has had a remarkably successful career of 20 years encompassing, Investment banking; corporate finance; audit covering diverse industries such as pharmaceuticals, metals, infrastructure, oil & gas, power and utilities; media and entertainment. A chartered accountant by education, Mr. Shinkar joined Wanbury Limited in 2004 and has been an important element of the growth of the Company. He has been instrumental in the acquisitions of ? The Pharmaceutical Products of India, Doctors Organic Chemicals Limited, Cantabria Pharma SL and in other strategic associations including Bravo Healthcare and subsequent mergers of Wander(India), The Pharmaceutical Products of India, Doctors Organic Chemicals Limited. He has been instrumental in mobilizing resources aggregating over Rs6bn through GDR, FCCBs, Mazennine fundin, ECBs etc.

Speaking with Anil Mascarenhas of India Infoline, Ashok Shinkar says, ?We are targeting Rs10bn topline in the coming years.?

Brief us about your business models.
Our business models are basically APIs for regulated markets and CRAMS for MNCs. We are a pharmaceutical company with presence in Domestic Formulations, Active Pharmaceutical Ingredients, Overseas Generics and CRAMS. We export bulk drugs to major customers like Teva, McNeil, Wyeth and Barr among others. We got an order book of over Rs500-600mn from Pfizer alone for CRAMS. The other orders are relatively small as the clients are mostly new entrants. It takes almost two years before you get an order. Our plants are approved by Wyeth, Novartis, Sanofi and Perigo among others. CRAMS business we are focusing and growing, we want to make this a large business. Besides pure generics, we are also into in-licensing patented drugs and marketing the same.

We have strategic alliance with a company called Bravo, which is a manufacturing facility for formulations. We are practically owners of that company. So far we were outsourcing formulations. We do product developments at their R&D center, getting it manufactured outside then branding and marketing it. With Bravo we will do some manufacturing for value added products in generics and for mainly for European and US businesses. This would be a forward integration of our APIs. With over 23 API products, we have leadership position in Metformin, Tramadol and Salsalate (for the US markets). We are adding 5-8 products each year in the bulk drugs. We do manufacturing for companies like Pfizer and have 2 USFDA approved plants. One is located at Tanuku (near Vijaywada, Andhra Pradesh) and the other in Patalganga (Maharashtra). For semi-regulated markets, we have a plant at Tarapur. We also do some outsourcing.

What about branded formulations?
In terms of branded formulations we have a presence in India and Spain. Both the businesses are focused on ethical formulations. Our marketing representatives visit the doctors and generate prescriptions. This is different from the typical pharmacy-led sale where discounts or freebies are offered. Besides our main division, the other divisions are Osteolife and Surglife. In India, the three key areas are Gynecology, Orthopedics and Gastro-intestinal.

In Spain, our focus is on psychiatric, CNS, respiratory and pain management. We later entered into cardiovascular segment. For the last 5-6 years, we have grown over 68% CAGR. In terms of the Indian business, we have moved up to 47th position from 89th for the last few months as per ORG-IMS. We are the fastest growing company in the top 100 companies for two years in a row. We got the "Best Brand Launch" by ORG-IMS in for Cpink, one of the key brands of Wanbury.

Out of 3500-4000 brands launch each year, ORG IMS monitors for a 24 months period and then gives the 10 best brand launches based on concentration of prescription, sales etc. CPink is an Rs260mn brand. Rabiplus is a Rs220-230mn brand. Two of our new brands could qualify for the Best Brand launch viz Adtrol Plus and Cpink-S.

CPink is a hematinic, typically used for anemia, pregnancy-related anemia or any iron deficiency. Rabiplus is anti-ulcer. Folinine is again pregnancy-related. A lot of pregnancy dropouts are due to deficiency of folic acid. Folinine is a folic acid preparation. Adtrol is a Methylcobalamin combination and is used for osteoporosis-led nerve damages as it rejuvenates the nerves. All these four brands are among the Top 3 in their respective segments.

When are you launching your new divisions?
Our new Division WOW and Welbone super specialty in Ortho would be launched this year.

How many brands do you have at present?
We got about 22 brands, which is our existing portfolio with sales of 20 to 80mn. These are products, which we have already launched this fiscal year. In FY10 we will launch respiratory and CNS products. We are making this company a partner of choice for in-licensing patented molecules. We have 3 products under patent, which we are marketing.

How much revenues come from your top 5 brands?
Our Top 5 brands contribute around Rs650-750mn from our overall revenues of Rs1.30bn. For the last couple of years, most of our new brands crossed Rs100mn, which is now like a benchmark for us.

Do you consider Spain business also as exports?
Spain is a completely separate business. Exports include only APIs. We will look at migrating into formulations over a period of time and the Bravo acquisition would help here.

Exports are about 65%. Within this 65%, around 60% would be for regulated market including US, Europe and Australia.

What are your financial goals?
We are targeting Rs10bn topline in the coming years. From APIs we expect Rs3.50bn by 2012. We have been significantly improving margins. CRAMS would bring in ~Rs1bn by 2012. We did ~Rs370mn for FY09. We expect to do ~650mn in FY10 and eventually grow that to ~Rs1bn. While these projections are conservative we are targeting a US$100mn inorganic growth.
On a sale of Rs3.50bn we are looking at about Rs500-600mn at least in terms of PBT in APIs. Domestic formulations should be in the region of another Rs3.50bn and Cantabria will also be almost equal to domestic formulation.

As the domestic and Spanish formulations grow, the margins will improve. In CRAMS we are targeting an overall margin of 16-18%. In APIs, we have about ~23 actively sold and ~27 drug master files. For Metformin, we have more than 55% share of the US market. In Tramadol, we are close to 80% of the market. In the formulation business we are the fastest growing company there. We are targeting to be among the Top 25 from the present 47th position.

Many players have been saying that margins are coming down in CRAMS. What has been your experience?
On the contrary we have got a price increase from Pfizer that is the difference between CRAMS and APIs. APIs is so market driven that you end giving price cut. In the case of CRAMS it is dedicated service and we are a preferred vendor for Pfizer. Last year Pfizer closed almost 70 plants and their policy is to outsource. They are already talking to us for many more molecules.

What will the revenue mix be going ahead?
CRAMS will be 8% and other businesses are also growing. So it may remain same. Inorganically, we are planning an Rs100mn addition. That will significantly increase the percentage. We plan an acquisition in the next two years.

How would your acquisitions be funded?
We are exploring jointly investing. These days even cashless acquisitions are possible. We will look at private equity or even a leveraged cash buyout.

What trends are you seeing in raw material prices?
Raw materials prices saw an upsurge during the Olympics in China. By and large it is settled now.

What opportunities are you looking at co marketing in India?
We are looking at a couple of good products. I would like to keep that discreet for now. We are actively looking at in-licensing. These are patented products outside (the country), which could be potentially good products for India or for Spain.

Comment on your R&D initiatives.
We have two R&D Centers; one at Turbhe and the other at Deonar. We are currently focused on CRAMS projects and APIs. We have identified few molecules, which could be a value-added generic and finished dosage combination for Spanish and European market. Similarly, we are looking for good product development for India. We had some good launches. Some had superior platforms while others were niche in terms of their launch.

What is the latest promoter holding? Any plans to increase or reduce stake?
The promoters approximately hold 42%. We are exploring how best we can enhance the value of the shareholder.

What is the latest on your FCCB outstanding?
We have already converted Rs1.3mn. We have an outstanding of Rs13.7mn. The maturity is end of 2012.

To what extent have you been impacted by the currency movement?
We are significantly impacted by the currency movement as we have already hedged our positions. However, it is more of a notional loss or rather I would term it opportunity loss. We see such a situation for another six months after which the situation may work in our favor.

What opportunities do you see for the industry?
We see a strong opportunity in the domestic business. Domestic pharma is set to grow in double digits. We are growing at around 80% while the industry is growing at ~10-12%.
We have miles to go as we can add more therapies, more doctors and more field force. Penetration is improving. Stronger regulations against poor quality drugs work to our advantage and enhance our sales. We will continue to grow at ~40% for the next 2-3 years based on our existing divisions. In the Chemistry business, the prices are pretty mature. We do not expect other companies to enter and lower prices further. In terms of price, we are amongst the cheapest even from a Chinese standpoint. For new launches, we will get a higher upside when the market opens for each of these products. In CRAMS, we see a definite growth.

You mean there is no slowdown for your business?
We do not see any slowdown in the Indian market. Specific slowdown may be there for some companies, which cater to markets like Latin America. Some companies may be facing recovery problems and could be in a cash flow slowdown. There is no pinch being felt in formulations and medicines even globally.

Any pressure to bring down prices? What are the other challenges?
That is a given. Staying competitive on regulatory basis is the big challenge. Compliance is the critical issue and companies should not let go of it. This is more of a mindset and it will keep India in a better position than China. It is a challenge and at the same time it is our USP.

What is your total debt?
The term debt stands at around Rs1.15-1.20bn. FCCB is about Rs930mn. We have Rs1.20bn debt in Cantabria at a subsidiary level where we did a leveraged buyout.

Your message to shareholders?
Wanbury is an attractive value pick. We are grossly under priced in terms of our equity. We have given consistent growth for the last five years and we will continue to give good growth for next 3 years at least. As an industry, we are doing well and all the areas we are in are doing even better. Earlier, there were concerns regarding the price we paid for Cantabaria but we are growing all these businesses and have turned it around successfully. We are looking at an International acquisition mostly European. Our endeavor is to increase revenue contribution from every tonnage we push into a facility.

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