NPIL hopes to shrug off 2-year slump

After two consecutive years of negative growth, India’s fourth largest pharma company, Nicholas Piramal (NPIL), is confident that it can reverse the trend as revenues from its contract manufacturing business flow in.

NPIL’s buyout of Pfizer’s Morpeth facility last week, puts it on top of the league of Indian contract manufacturers with expected annual revenues of Rs 900 crore.

Investments in contract manufacturing have affected the firm’s profitability, but margins will rise as revenues start flowing in. Integrating Avecia and Morpeth businesses, acquired last year, and ramping up supplies will lead to profitability. The acquisition of Pfizer’s Morpeth facility is a big win for NPIL.

“We expect contract research and manufacturing services (Crams) to contribute up to 50% of our revenues by the end of this fiscal,” says NPIL chairman Ajay Piramal. The facility comes with a five-year supply contract that could yield revenues of $350m (Rs 1,610 crore) during the tenure.

The domestic company also expects to tie up with new customers. Morepath’s base in Western Europe could enhance its appeal with other global pharma companies who may be more comfortable about sourcing from a UK-based plant. “The track record of the company should help us attract new customers,” Mr Piramal said.

Since its decision in ‘03 to enter the contract manufacturing business, NPIL has invested close to $175m (Rs 806 crore) towards creating capacity in the segment. Giving details of the investments, the NPIL spokesperson said, “About $100m has been spent on greenfield projects in India.

This is in addition to the $25m and $50m towards the acquisition of Avecia and Pfizer’s Morepeth facilities respectively.” While Nicholas Piramal’s acquisitions have allowed it to build a critical mass and increase its technology range, the firm will need to rationalise costs to make the Avecia and Morpeth businesses competitive.

Analysts say costs will have to be cut significantly. This can be done either by synchronising operations with the Indian assets, or sourcing intermediates from new locations in China or India, they said.

Mr Piramal said the increase in topline and higher productivity along with an integration with Indian operations, will allow Avecia to break even by year-end. In case of Morepeth’s facility, he said he was not looking at major restructuring, but synergies with Indian operations.

The firm expects a rise in overall margins because of contract manufacturing. But NPIL is not reducing its focus on the domestic market. “India remains the core of our strategy,” said company sources. Domestic formulations market will drive overall margins and provide strong cash flow, they said.

Mr Piramal says NPIL will look at both inorganic and organic growth to raise its product portfolio, as well as its technology range. To fund future acquisitions, the board has approved a resolution to raise up to $1bn (Rs 4,608 crore), through the issue of securities in the domestic or international markets.

The firm is not looking at a major acquisition, but it could complete small to medium takeovers. NPIL is in race for US-based life science company Cambrex.