No plan to merge SPARC with Sun Pharma: Dilip Shanghvi

Written By Unknown on Rabu, 25 Maret 2015 | 23.25

Almost a year after it was first announced, the merger between  Sun Pharma and rival  Ranbaxy is now complete and April 7 has been set as the record date . Ranbaxy will be delisted from stock exchanges and shareholders of the company will receive 0.8 shares of Sun Pharma for each share of Ranbaxy.

With the merger complete Sun Pharma is now India's largest and the world's fifth largest drug maker with combined revenue of USD 5.14 billion. CNBC-TV18's Ekta Batra spoke with Dilip Shanghvi, MD, Sun Pharma to talk about the plans for the merged entity.

Below is verbatim transcript of the interview:

Q: Your margins indicate that they will now come down to a consolidated 32 percent as of December 2014. You did indicate that there are further R&D investments and may be there would be further remediation measures that will be undertaken and that too will see some amount of outflow of cash. Where can we expect margins to go from here for the combined entity and where do you expect it to possibly settle?

A: Difficult for me to give you a predictable number right now. All I can say is that it will be our focus to grow the business faster. The solution to margin problem is finding a way to ensure that you have higher productivity from the same asset.

While we continue to focus on managing our business more cost effectively, the idea is that we will also find a way to increase growth in each of pour businesses so that the increased profit generated from the new business will help us improve margin.

Q: Can you tell us whether margins will be above 30 percent? Where do you expect it to settle even in terms of a range?

A: At some point of time when we give next year's guidance we will come out with what kind of improvements we are expecting. What we have shared with investors and analysts is that we are expecting generation of synergy benefit of USD 250 million over the next three years both from growth as well as cost rationalisation.

Q: One of the things that you emphasised on during the press conference was investment in research and development. Eventually from USD 250 million to USD 300 million and may be up to USD 500 million. You have SPARC which is a separate entity as well. Could we see a merger of SPARC coming into the entire consolidated entity instead of having it as a separate entity at this point in time?
 
A: As on today, there is no plan to consider merger of SPARC with Sun Pharma. The problems that SPARC is focusing on are developing products with longer-term time horizon, higher level of complexity.

Q: What is the rationale behind keeping it separate?

A: I think managing innovation of fairly high complex order where you have new biology, new understanding of science is a different kind of challenge than the problems that you have to solve when you are doing generic R&D. So, mindset with which you have to drive that business is very different because you are looking at businesses which will continue to invest for 10 plus years before it will see any potential upside on any of their projects.

Q: One of the big challenges that you are going to face as a combined entity is to resolve the US FDA issues that have been plaguing Ranbaxy for multiple years now. A lot of analysts are perturbed with the fact that there hasn't been any concrete development yet despite of the steps that have been undertaken. What is the step forward, you did mention that you want to bring confidence back into the regulators when it comes to Ranbaxy, how do you propose to do that?

A: My understanding is that regulators have concerns about the data coming out of the Ranbaxy facility. So I believe that the trust is broken and we have to find a way to regain that trust of the regulators and that would be our focus.

Sun Pharma stock price

On March 25, 2015, Sun Pharmaceutical Industries closed at Rs 1053.30, up Rs 13.45, or 1.29 percent. The 52-week high of the share was Rs 1074.05 and the 52-week low was Rs 556.50.


The latest book value of the company is Rs 35.77 per share. At current value, the price-to-book value of the company was 29.45.


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