20th March

Global pharma consolidates

The article analyses Indian Pharma industry with respect to the ongoing consolidation in the global pharma industry with three large acquisitions this year and many more to come. 

Acquisitions are one way out for the companies suffering from rapidly declining new stream of drugs and expiry of the patented drugs in the coming 5 years. Pfizer acquired Wyeth in a $68b deal; Merck acquired Schering-Plough in $41.1b deal while Roche bought Genentech in a protracted saga. Pharma industry is not affected by the global business cycles. However, the major reason for acquisitions is search for future growth engines. Patents for some high-profile drugs would expire in next 5 years. Acquisitions help in acquiring possible future drugs. Thus scale is the deciding factor for the future Pharma industry. In contrast, Indian Pharma industry suffers from lack of scale and thus big pocket for acquisitions abroad. So far, low cost but quality manufacturing had been a core competency for Indian pharma companies. Drugs that would go off patent are a big opportunity but it is not the long term business model. Investment in R&D needs to be improved with clinical research sent to third parties. But that requires strong balance sheets which Indian companies don’t have.

What is needed for Indian companies is to go for inorganic growth or acquire niche skills. Attractive valuations and easier availability of capital in largely recession insulated economy is a strong backdrop.

Congress conundrum

The article speaks about the challenges Congress is facing in the Hindi heartland of UP and Bihar after being forced to go on its own in the two most crucial states for general elections.

Congress should make the best of this bad situation by executing an identity makeover in these states and regain its lost ground. The regional parties in these two states have used the caste based politics to their advantage, something which Congress has failed to do big time. The task is more then resolving the factional infighting or rebuilding organizational structure or nurturing local leadership. Congress has to look beyond the caste based tactics adopted by the regional parties to pull the string. It has to refashion itself in a way that every section of the society resonates itself in the party. Selective patronage and tactical alignment would be of little help. 

What is needed for Congress is a larger political refashioning in a way that it once again becomes a major player in the Hindi heartland. 

Arbitrary indeed

The article ridicules the move by government to hive off some 10% IOC outlets to BPCL and HPCL without any logic. It also points out the need for proper reforms in the oil sector especially the retail segment.

Since IOC is a publicly listed company with a significant amount of non-government stake in it, such move is totally illogical. The stakeholders would definitely ask for an explanation. Such move is said to be provoked on account of the strike by public sector oil workers earlier this year. Also IOC with more then 50% of market share, such move to shed off 17600 outlets to HPCL and BPCL would end its market dominance. Even if the move was intended to dissuade further strikes, it should have requisite provisions in law and improved governance norms. What is needed for government is to carry out the reforms with full gusto especially when the oil prices are low which leaves enough space for pricing reforms. Free pricing regime would take care of most of the problems that govt cite for taking such steps.

Finally, independent oil retailers and purposeful opening up of retail segment in petro-goods is what is needed.