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June 22, 2011

Why OTC Pharma is hot property

From the Business Today article:
"The consumer healthcare segment is growing at around 18 per cent, almost 1.5 times the rate at which the FMCG sector is growing," points out Nikhil Vora, Managing Director at brokerage house IDFCSSKI. Rising fees of medical professionals, an increasing penchant for self-medication, aggressive advertising and increasing faith in traditional medicinal systems like ayurveda are driving this growth.

..."Companies like Amrutanjan, Zandu and Paras are in demand because they have established brands and a wide product portfolio," says Vora. At eight times its sales, Paras may have been valued richly, but analysts say it has commanded such a price because there are not too many opportunities for inorganic growth in this lucrative segment.

...A major attraction of OTC pharma is the margins, which are almost double those in FMCG. "On an average, the operating margins in OTC pharma could vary between 20 and 25 per cent compared to 12 to 15 per cent margins in the FMCG sector," says Khanna of CubeX. Like FMCG, though, investments in brand-building are an imperative. As Khanna adds: "Once the brand is established, it can command higher margins."

Consider the example of Ranbaxy's health supplement Revital, which was launched in 1989 - not as an OTC product but via doctor-focused marketing. For the next 13 years, Revital plodded along to become a Rs 35-crore brand. In 2002, Ranbaxy decided to sell it over the counter. Result: Revital has grown into a Rs 160-crore brand.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at