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Title: india


1
change your perspective see what makes the
difference
india - a destination for cross-border ma
opportunities a discussion document march, 2008
pharma healthcare
private and confidential
2
the india proposition select economic criteria
  • 4th largest economy in the world 2nd largest GDP
    among the developing countries (based on
    purchasing power parity)
  • over the past 15 years, has been the second
    fastest growing economy in the world, after
    China, with an average annual growth rate
    exceeding 6.5
  • displaced the US as the second-most favoured
    destination for foreign direct investment (FDI)
    in the world after China. (source AT Kearney's
    FDI Confidence Index)

key metrics
  • probably the most preferred country for future
    RD investments, with slightly more than 40
    percent of CEOs indicating they will likely make
    such investments over the next three years
  • most mature and well developed capital markets
    amongst developing countries
  • 3-4 years of unabated bull-run based on record
    corporate growth earnings have provided Indian
    companies the necessary foundation for expansion
    with minimal leverage
  • modest inflation despite spiraling crude prices

3
the india proposition availability of funds
4
the india proposition availability of funds
5
the india proposition pharmaceutical sector
  • the Indian pharmaceutical sector is currently the
    largest amongst the developing nations. Given its
    current momentum of growth the Indian
    pharmaceuticals market is expected to expand to
    US 25 billion by 2010. It is rightly considered
    to be one of the flagship sectors of the Indian
    economy, as Indian pharmaceutical companies
    continue to move to the center stage of the
    global pharmaceutical market. There is a
    worldwide structural trend evolving in
    pharmaceuticals and Indian companies play a key
    role in this framework, driven by their superior
    biotech and drug synthesis skills, high quality
    and vertically integrated manufacturing assets,
    differentiated business models and significant
    cost advantages.
  • Even at home, Indian pharmaceutical companies
    reign supreme compared to their multinational
    counterparts. Profit margins of Indian companies
    are consistently on the rise and the recent trend
    of mergers and acquisitions by Indian
    pharmaceuticals are likely to provide an upside
    to the growth numbers. Total Indian
    Pharmaceutical Market is valued at US 8790
    million with a growth rate of exceeding 8
  • Indian pharmaceutical companies have adapted to
    the changing industry dynamics and increasing
    regulatory and competitive pressures and have
    evolved distinctive business models to take
    advantage of their core competencies in RD,
    Manufacturing, Marketing and the niche
    opportunities offered by the changing global
    pharmaceutical environment. These differentiated
    business models provide the pharmaceutical
    companies the necessary competitive edge for
    consolidation and growth

6
the india proposition pharmaceutical sector
7
the india proposition pharmaceutical sector
8
the india proposition the global indian cross
border acquisitions
list excludes the take-over of Arcelor by
Mittal Steel (essentially Indian promoter and
management team)
9
the india proposition the global indian cross
border acquisitions
Amtek Auto Zelter GmbH, Germany, GWK Group, UK, Lloyds (Brierly Hill), UK, Midwest Mfg. Co., USA, Tiplex-Kelton Group, JL Frenchs (Witham) Limited
Asian Paints Delmege Forsyth (Sri Lanka), Pacific Paints (Australia), Berger International, SCIB Chemical (Egypt), Taubmans Paints (Fiji)
Bharat Forge CDP Aluminiumtechnik, Germany, Federal Forge, USA, Imatra Forging Group, Sweden and Scotland
Havells India Ltd SLI Sylvania lighting business, acquisition price USD 300 million
Indian Hotels Hotels in Zambia and Australia
Marico Sundari LLC, USA, consumer division of Enaleni Pharmaceuticals
MindTree Consulting TES-PV Electronic Solutions
Motherson Sumi Reiner Präzision GmbH and GS Kunststofftechnik GmbH in Germany, Empire Rubber
Reliance Communications Yipes Holding Inc, acquisition price USD 300 million
Reliance Industries Gulf Africa Petroleum Corporation (GAPCO)
Reliance Life Science GeneMedix Plc, acquisition price USD 28.80 million for a 74 stake
Sterlite Monte Cello Corporation, Netherlands, the holding company of copper mines in Australia
Sundaram Fastners Dana Spicer, UK, Peiner Umformtechnik GmbH, Germany, PUT Grundstucks GmbH
Tata Tea Tetley, Good Earth, JEM_A, Glaceau
VSNL Teleglobe International Holdings, Tyco Global Network
Wipro Spectramind, GEs healthcare software arm, global Energy practice of American Management Systems, Nervewire, US, Ericsson's Indian RD arm, OkI Techno Centre Singapore
10
the india proposition the global indian cross
border pharma acquisitions
  • why indian companies acquire ?
  • build critical mass in terms of marketing,
    manufacturing and research infrastructure
  • establish front end presence
  • tap other geographies / therapeutic segments /
    customers
  • enhance product, technology and intellectual
    property portfolio
  • catapulting market share
  • barrier to entry
  • Indian pharmaceutical companies have now moved
    up a step in the value chain and are looking at
    inorganic route to growth through acquisitions.
    Many top and mid tier Indian companies have gone
    on a global "shopping spree" to build up critical
    mass international markets

the India advantage
  • Indian pharmaceutical companies, given their
    reverse engineering skills have evolved superior
    chemistry, regulatory and manufacturing skills at
    low cost
  • Availability of skilled labor at low cost (labor
    costs in India are around 1/7th the levels in
    developed countries)
  • Capital efficiency Indian companies are able to
    reduce the upfront capital cost of setting up a
    project by 25-50 due to access to locally
    fabricated equipment and high quality local
    technology/engineering skills. This benefit can
    be passed on to customers
  • Regulatory expertise India has around 75 plants
    approved by the US-FDA (the highest in any
    country outside USA)

The total value of merger acquisitions
transactions done by the Indian pharma companies
exceeds US4 billion in value terms (last 24-30
months)
11
the india proposition the global indian cross
border pharma acquisitions
  • industry dynamics and deal preferences
    innovation vs. generics / commodity products
    the company group has products ranging across the
    spectrum (and the geographical reach) thus
    would be a suitable investment target for a
    number of Indian pharma product companies

12
the india proposition the global indian cross
border pharma acquisitions
13
the india proposition the global indian cross
border pharma acquisitions
14
the india proposition the global indian cross
border pharma acquisitions
15
the india proposition the global indian cross
border pharma acquisitions
  • sample mergers acquisitions inked by the Indian
    industry participants in 2005-06 in the pharma
    sector

16
the india proposition the global indian cross
border pharma acquisitions
  • mergers acquisitions inked by the Indian
    industry participants in 2005 in the pharma /
    biotech sectors

17
the india proposition the global indian cross
border pharma acquisitions
  • mergers acquisitions inked by the Indian
    industry participants in 2005 in the pharma /
    biotech sectors

18
the india proposition the global indian
management philosophy
  • apart from the generic products space, the
    innovation space acquisitions would be an optimal
    tool for Indian companies while building on their
    capabilities given the industrys relative
    inexperience with basic applied research and
    product development. The advantages of acquiring
    a company strong in research development for
    innovation are many and obvious a few broad ones
    include
  • fewer challenges in turning around the
    acquisition considering the scale of operations
    of an RD driven service provider in comparison
    to a marketing and sales driven generic
    products company
  • fewer challenges in merging acquired research
    projects or capabilities in the absence of
    multiple well established in-house research
    programs and capabilities
  • gaining an existing alliance portfolio of the
    acquired company thereby creating an immediate
    entry into the innovation and its related space
    to be consolidated further
  • ability to synergize existing and acquired
    capabilities to seek new vistas of opportunity
  • the bottom line since MA provides a potential
    advantage to succeed for Indian companies on
    their way to harness external capabilities in the
    absence of existing competencies and strengths of
    in-house research projects and many untapped
    geographies the key elements of the incumbent
    management team essentially be integrated into a
    bigger roles, in a larger organisation with
    larger budgets and targets

19
the india proposition the global indian a case
study
  • Wockhardt is a global, pharmaceutical and
    biotechnology company that has grown by
    leveraging two powerful trends in the world
    healthcare market - globalization and
    biotechnology.
  • has a market capitalization of US 1.3 billion
    and an annual turnover of US 285 million (Rs.
    12.39 billion). Wockhardt has a strong and
    growing presence in the worlds leading markets,
    with half of its revenue coming from Europe and
    the United States.
  • key strengths
  • manufacturing capabilities manufacturing
    facilities in India and UK have the approval of
    major regulatory bodies, including US FDA and
    UK's MHRA, with capabilities for both Finished
    Dosage Formulations and APIs
  • biotechnology Wockhardt has developed
    comprehensive concept-to-market strengths in
    all facets of recombinant biotechnology. These
    include gene-cloning, development of production
    strains, expertise in all three major expression
    systems, purification, downstream processing and
    testing
  • set up the Wockhardt Biotech Park, amongst
    Indias largest biopharmaceuticals complex, with
    six dedicated plants built to international
    standards with capacities to meet 10-15 of
    global demand for important biopharmaceuticals
  • sound regulatory infrastructure has been set up
    for its biogenerics pipeline with registrations
    in developing markets. The company has also set
    up front-end offices in the identified markets -
    either owned organizations, strategic joint
    ventures or distribution arrangements
  • acquisition management
  • the company has a strong track record in
    acquisition management, with three successful
    acquisitions in the European market and two in
    the domestic space.
  • the acquisitions in Europe and the subsequent
    integration of their operations have strengthened
    Wockhardts position in the high-potential
    markets of UK and Germany, and have expanded the
    global reach of the organization
  • the growth drivers for Wockhardts European
    business include exports, new product launches,
    penetration in the European Union through mutual
    recognition, and strategic acquisitions

20
the india proposition the global indian a case
study
  • continued
  • Wockhardt UK Limited (Erstwhile CP
    pharmaceuticals) is amongst the 10 largest
    generics companies in UK and the second largest
    hospital generics supplier. The Company has a
    comprehensive, FDA-approved manufacturing
    facility. Wockhardt UK has built up a critical
    mass in the segments of Retail Generics, Hospital
    Generics, Private Label GSL / OTC
    Pharmaceuticals, etc
  • Esparma GmbH The acquisition of Esparma GmbH in
    2004, has given Wockhardt a strategic entry point
    into Germany, the largest generics market in
    Europe. Esparma has a strong presence in the
    high-potential segments of urology, neurology and
    diabetology, assisted by a dedicated sales
    marketing infrastructure
  • key to Wockhardts successful acquisition
    management is the managements ability to
    turnaround the acquired company, in active
    participation with the incumbent management team,
    in record time and thus create value out of the
    acquisition.
  • the company believes in value buys that would
    have a tactical fit with its core competencies
    and key strategic objectives
  • the company has plans for further acquisitions in
    the developed markets of Europe and US to further
    consolidate and strengthen their positions in
    these geographies

21
the india proposition healthcare sector
  • the Indian healthcare sector has been growing at
    a frenetic pace and is undergoing phenomenal
    expansion. Private hospitals and continued
    investment in the public health programmes are
    driving the boom
  • healthcare industry includes different segments
    healthcare delivery, medical equipment and
    diagnostics, medical outsourcing and medical
    education
  • revenues from the healthcare sector account for
    5.2 per cent of the GDP and it employs over 4
    million people (source CII-Mckinsey study on
    'Health in India' ). By 2012, revenues can reach
    6.5 to 7.2 per cent of GDP and direct and
    indirect employment can double
  • India will spend US 45.76 billion on healthcare
    in the next five years as the country, on an
    economic upsurge, is witnessing changes in its
    demographic profile accompanied with lifestyle
    diseases and increasing medical expenses
    (source CII-Mckinsey study on 'Health in India'
    )
  • private healthcare will continue to be the
    largest component in 2012 and is likely to double
    to US 35.7 billion
  • could rise by an additional US 8.9 billion if
    health insurance cover is extended to the rich
    and middle class
  • coupled with the expected increase in the
    pharmaceutical sector, the total healthcare
    market in the country could increase to US 53-73
    billion (6.2-8.5 per cent of GDP) in the next
    five years

22
the india proposition healthcare sector key
drivers trends
  • changing demographic and socio-economic profile
  • proportion of the country's population in the
    15-54 and the 55 and above age groups is
    increasing owing to improvement in life
    expectancy levels
  • large geriatric population (55 and above),
    estimated to be the largest in the world, will
    form a major consumer segment in the near future
  • rising demand for quality health care
  • growth in affluence of over 300 million strong
    middle-income consumers is creating demand for
    higher standards of healthcare
  • between 1993-94 and 2001-02, aggregate household
    expenditure on health services increased at an
    annual compounded rate of 9.3
  • multi-specialty private hospitals are preferred
    even if the consumers bear this expense
    personally
  • increasing penetration of private health
    insurance
  • with growing awareness levels and increasing
    affordability arising out of the growth of
    private health insurance, the demand for quality
    healthcare services in India is growing faster
    than ever before
  • estimates project an insured base of 160 million
    by 2010
  • institutional customers have emerged as an
    important customer segment for private health
    insurers
  • changing lifestyle patterns
  • incidence of lifestyle diseases such as diabetes
    and cardio-vascular diseases is on the rise
  • trend is driving the demand for multi-specialty
    and super-specialty healthcare services, covering
    key therapeutic areas like cardiology,
    nephrology, oncology, orthopedics, geriatrics,
    maternity and critical care

23
the india proposition healthcare sector key
drivers trends
  • healthcare sector posted a 42 rise in earnings
    in the year to March 2007 (source Reuters)
  • at the current pace of growth, medical tourism,
    currently pegged at US 350 million, has the
    potential to grow into a US 2 billion industry
    by 2012
  • private healthcare will form a large chunk of
    this spending, rising from US 14.8 billion to
    US 33.6 billion in 2012. This figure could rise
    by an additional US 8.4 billion, if health
    insurance cover is available to the rich and the
    middle class
  • the voluntary health insurance market, which is
    estimated at US 86.3 million currently, is
    growing fast. Industry estimates put the figure
    at US 2.8 billion by 2005
  • with the expected increase in the pharmaceutical
    market, the total healthcare market could rise
    from US 22.2 billion, currently (5.2 per cent of
    GDP) to US 50 billion - 69 billion) (6.2-8.5 per
    cent of GDP) by 2012
  • the sector is providing a host of opportunities
    including
  • medical tourism
  • preventive health care
  • health care BPO
  • tele-medicine
  • laboratory and diagnostic services
  • medical devices

24
the india proposition the global indian cross
border healthcare acquisitions
  • Indian healthcare is all set to go global with a
    host of domestic hospital chains busy scripting
    overseas expansion plans
  • Apollo Hospitals has drawn up plans to set up or
    manage hospital projects in Mauritius and Fiji.
    Besides, it is bidding for a diagnostic facility
    in the UK and plans to try for a hospital project
    in that country later. These would be in addition
    to the group's existing overseas facilities in
    Colombo, Bangladesh, Nigeria and the Middle East
  • Max Healthcare, another leading hospital chain,
    is trying to enter the US, UK and far-east
    markets. This is besides the expansion of its
    operations in neighbourhood countries like
    Bangladesh and Afghanistan
  • Wockhardt is also eyeing markets in Europe,
    particularly the UK, as part of its growth
    strategy. The company is already building its
    brand presence through tie-ups with leading
    healthcare insurance providers in the US, UK and
    Singapore
  • the government is also providing able support to
    help promote smaller health care providers
  • till now, only a few big private healthcare
    providers such as Apollo, Fortis, Wockhardt and
    Max were creating their individual brand
    awareness in overseas markets through tie-ups
    with insurance companies and patient facilitation
    centres
  • the government is launching a comprehensive
    programme to promote medical tourism
  • putting in place an accreditation system for
    domestic hospitals and healthcare providers,
    drawing up a price band for superspeciality
    services offered by Indian hospitals, adoption of
    country-specific marketing strategies, opening of
    overseas facilitation centres and tie-ups with
    overseas insurance companies
  • the National Accreditation Board for Hospitals
    and Healthcare Providers (NABH) set up by the
    Ministry of Health under the aegis of the Quality
    Council of India is currently finalising the
    guidelines for accreditation of hospitals and
    other healthcare service providers

25
the india proposition medical devices sector
  • the biomedical devices market in India is
    unofficially estimated at around US 2 billion
    and of which about 80-85 is met through imports
  • driving forces that are creating the demand for
    medical equipment include
  • establishment of a number of super-specialty
    hospitals and specific diagnostic centres
  • urban private sector hospitals upgrading their
    equipment and instruments to remain competitive
  • favourable government policies such as a
    reduction in import duties on medical equipment
  • off-shoring medical devices
  • as an example the US market for medical devices
    is expected to reach 89 billion in 2007,
    representing a promising opportunity for
    manufacturers and service providers (source
    Medical Device Diagnostic Industry "Opening
    the doors to India Off-shoring Medical Devices)
  • with this opportunity comes the added pressure
    for medical device companies to stay ahead of the
    competition
  • to compete in this attractive market, many
    medical device makers are successfully partnering
    with offshore outsourcing firms and collaborating
    on device development and manufacturing
  • they are off-shoring processes such as
    application development, systems engineering,
    hardware design, software solutions, and
    manufacturing
  • benefits of outsourcing to India
  • Impressive pool of well educated, highly
    qualified, english speaking professionals
  • With more than 380 universities, 11,200 colleges,
    and 1500 research institutions, India has the
    second-largest pool of scientists and engineers
    in the world more than 2.5 million graduates are
    added to the workforce every year, including
    300,000 engineers and 150,000 technology
    professionals
  • among Brazil, Russia, India, and China, India is
    expected to stay the youngest its working-age
    population is estimated to represent 70 of the
    total population by 2030 the largest in the
    world
  • economic political stability
  • partners that specialize in finished-device
    manufacturing, can help a company improve quality
    while shortening the product development cycle
    and reducing time-to-market and reducing the
    lifecycle costs by as much as 40-50

26
the india proposition the global indian a case
study
  • Opto Ciruits (BSE Code 532391 NSE Symbol
    OPTOCIRCUI) is a leading manufacturer of
    non-invasive healthcare equipments headquartered
    in Bangalore, India. The product profile includes
    digital thermometers, sensors, probes, pulse
    oxymeters, patient monitoring systems and
    innovative products in the pipeline. OCIL has two
    lines of businesses
  • (a) OEMs direct supplier to GE and other large
    MNCs
  • (b) MediAid (100 US-based subsidiary) markets
    OCILs brands
  • grown in-organically over the past few years
  • Advanced Micronic Devices, a listed company
    engaged in manufacturing and marketing of health
    care equipments in India 2001
  • Digital Clinical Thermometer division from
    Unilever in India 2002
  • Acquisition of the patient monitoring division
    of Palco Labs, USA 2003
  • continuing its goal of aggressive growth and
    diversification in the healthcare segment
    recently (Dec 2005) completed its acquisition of
    EuroCOR GmbH
  • transaction valued at 11 million
  • EuroCOR manufactures Cardiac and Peripheral
    Stents of various types, including Drug Eluting
    Coronary Stents used in Critical Cardiac Care. It
    is one of the largest manufacturers of Stents. By
    acquiring EuroCOR, OCIL gets to access the
    existing as well as potential market for Stents
    globally

Why OCIL acquired EuroCor ..
  • strong foothold in the global arena for Stents
    (total global market for Stents expected to be
    US10billion by 2008)
  • strong RD base of EuroCOR will lead us in the
    direction of greater market share and also better
    margin business
  • help improve shareholder value

What EuroCor had to say ..
  • though present in more than 26 countries
    worldwide including in India, this acquisition by
    Opto Circuits gives
  • a great opportunity to access the vast potential
    offered by India
  • excited by the prospect of tapping latent
    potential in developing countries

27
key contact information
  • Sanjay Krishnan
  • London
  • sanjay_at_mosaiccap.com
  • hand phone 44 (0) 7738321449
  • facsimile 44 (0) 208 711 3943
  • Vinay Shah Ashutosh Ghanekar
  • Mumbai
  • vinay_at_mosaiccap.com
  • hand phone 91 (0) 9967642785
  • facsimile 44 (0) 20 66325631
  • Vikram Bihani
  • Bangalore
  • vikram_at_mosaiccap.com
  • hand phone 44 (0) 9886409387
  • facsimile 44 (0) 80 25091532
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