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November 09, 2011

The Bargain Hunter: Sun Pharma's Dilip Shanghvi

From The Economic Times profile
Shanghvi has a conservative approach to doing business,with eyes firmly focused on cost and the bottom line. As bullish peers made ill-timed and expensive (in hindsight) acquisitions in western markets in the past decade, Shanghvi steered clear of bidding wars and oneupmanship. Instead he chose to buy distressed assets on the cheap with a view to turning them around. Taro,a financially mismanaged company whose shares were in the doldrums when Sun offered to buy control, is one such asset. Shanghvis perception of value is free of external stress factors, says the former CEO of a generics company.

In nearly every major strategic decision it has made,Sun has parted ways with conventional wisdom. In the 1980s,while Indian companies were hawking antibiotics and other short-term treatments to general physicians, Shanghvi saw an opportunity in selling meds for chronic diseases to specialists such as psychiatrists and cardiologists. India has since witnessed explosive growth in these segments. Then,when competitors began investing in researching completely new drugs an arduous expensive process with no guarantees he chose to back so-called differentiated medicines where risk is less. And whilst rivals planted flags in three continents, Sun Pharma chose to focus on just home market India, and the US.

Some of these contrarian bets have paid off. At Rs 5,721 crore in revenues, Sun is more than double its size five years ago and No.4 after Ranbaxy, Dr Reddys and Cipla. It is a leader in key specialist-focused therapy areas in India.On the bourses, Sun Pharma is twice as valuable as No.2 by market cap Dr Reddys Labs. It is also the most profitable among leading Indian generics companies with an operating margin of 34%. After buying Taro, it ranked as the number two Indian generics company in the US with $500 million in revenues in fiscal year 2011.
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