Need to regain trust of regulators post Ranbaxy deal: Dilip Shanghvi, Sun Pharma

In an interview with ET Now, Dilip Shanghvi, MD, Sun Pharma, shares his business outlook post the Ranbaxy deal. Excerpts:

ET Now: What is your prescription to revive Ranbaxy?

Dilip Shanghvi: The first focus would be to find a way to regain that trust of the regulators because regulators are concerned about the integrity of the data coming out of the Ranbaxy facility. It will be our first focus to find a way to resolve this issue at a fundamental level where we will try and understand why people manipulate information, whether there are any external levers which put that pressure, then we have to solve those problems. The idea is to allow people to perform. Everybody wants to do well. We want to give that opportunity to people.

ET Now: You have indicated that over the next three years $250 million of synergy will come in because of the merger. A lot of people believe that it can even come in much earlier. What is your game plan in this synergy? How do you plan to do this?

Dilip Shanghvi: The most important synergy is synergy of growth. If you see Ranbaxy as a company over the last few years, it has not been growing in line with the markets. Our focus will be to find a way to ensure that all the businesses of Ranbaxy grow faster than the market. We will put in place appropriate processes so that the investments required to grow the business will be available for all the businesses.

ET Now: Over the past few years what we have seen is that for Ranbaxy, except for India, most of the other markets have not been doing well at all. Do you think there was a problem with the way the company was managed currently and what does Sun Pharma intend to do about this?

Dilip Shanghvi: I will not have a clear understanding of why company has not done well, but our philosophy of managing the business is to run the company entrepreneurially, empower all the performing managers so that they can take the decision in the way so that company and the businesses under their control grow faster. We believe that by empowering and by giving appropriate authorities to people, everybody finds a way to succeed.

ET Now: You have spoken a lot in your presentation about the rest of the world markets, the emerging markets. Now currently Ranbaxy has a much bigger focus on the ROW markets rather than you. How are you preparing to brace yourself for newer markets now and how would you go ahead with this plan that you spoke about in the press conference earlier?

Dilip Shanghvi: Emerging markets have their own challenges and each of the market is different from the other market. Opportunities in each of the market may also be different from the other market. So we have to understand the challenge of individual market, solve those challenges so that you can succeed, but the underlying growth engine for every company and in all geographies will be to get approval for innovative products ahead of competition. So that is where productivity of R&D, ability to develop differentiated product will help the company.

ET Now: You also spoke about getting margins of Ranbaxy up, that was part of your synergies, from current 8% to probably 18%. Will this be driven by cost containment or probably growth? What is the strategy that you are adopting right now?

Dilip Shanghvi: I think it will be both. On one side, we will find a way to grow the business faster and at the same time, how we can achieve the same outcome with lesser investment.

ET Now: Recently SPARC got an approval for one of the products which Sun Pharma will manufacture from the Halol facility. Can you confirm to us whether all the issues with the Halol plant are over now and what role will SPARC now play in the merged entity of Sun Pharma-Ranbaxy?

Dilip Shanghvi: Beyond that, we got the approval from the facility at Halol. I have no additional information to be shared with you. My understanding is that you generally get an approval for a facility if it is in compliance. As to SPARC and Sun relationship, SPARC has given the licence of first refusal to Sun for all its product in emerging market and that will continue even for the combined entity.

ET Now: You spoke a lot about R&D, you even spoke about increasing the R&D spend. Now how do you use synergies at the R&D level given the fact that there are multiple markets to focus and possible overlap in some Indian markets and some parts in the United States?

Dilip Shanghvi: Now we will have more than 2000 people working in R&D and we will have in Sun R&D centres in Israel, Canada and US. So we will find a way because of this large number of scientists in different geographies. We will have ability to develop products for all the markets.

ET Now: One thing that the analyst community always likes about Sun Pharma is that you operate at a very high margin. Now Taro is one of your important companies which gives a lot of margin. With the Ranbaxy coming in which is a very low margin company currently because of certain issues, how do you see margins going ahead and how will you maintain margins? Will the price hike at Taro, which has boosted margins, has to stop at one point of time? So how do you see the combined entity in terms of operating margins?

Dilip Shanghvi: The solution for margin is to find a way to grow the business faster because if your business grows, your overall margin goes up. You control cost effectively so that it will help you in improving your profitability and get more productivity of all your assets.

ET Now: As a company, the base has grown so wide for Sun Pharma. If you want to grow at the same rate that you were growing over the past few years, you need acquisition. What is your view on acquisitions? Does Sun Pharma have the bandwidth to actually go in for, let’s say, a $10-billion acquisition if indeed you want to reach the level of the global peers or you are currently at number five and you probably want to go much ahead? So what is the scale and your view on acquisitions?

Dilip Shanghvi: First of all, I want to clarify that size does not excite me. We will never do acquisition for the sake of becoming bigger. All acquisitions that we will do, we should be able to manage and create more value than the companies able to create today because otherwise, you cannot justify the acquisition premium. It is important for us to ensure that all our businesses grow organically quite well so that we can be selective about acquisition and we do not need to be pressurised into doing an acquisition.

ET Now: Would Sun Pharma ever consider acquiring a company which is much bigger than its size probably to gain that bandwidth in the markets currently?

Dilip Shanghvi: It is a very hypothetical question, so difficult for me to answer because you have to look at product, market, opportunity of growth of the product and, as I explained, we should be confident that we should be able to run that business better than the present management is.

ET Now: For all the shareholders, for all the investors who are invested in your company, what is your five-year vision for Sun Pharma? Where do you see Sun Pharma five years down the line?

Dilip Shanghvi: It is difficult for me to answer this. My focus is that year after year, our businesses should grow faster than the industry. We generally give one-year guidance and our strategy is to ensure that we achieve our guidance. Five years are a long time and difficult for us to predict where we will be, but hopefully, we will be in a much better place than where we are today.