Sensex 15,000 & Nifty 4,800 by March, or may be lower a real possibility….

My confidence on Markets moving lower strengthening day by day. Till now markets were/are trying to deal with Internal Problems i.e. Corruption, Inflation, Interest Rates, Fiscal Consolidation, Poor spending etc., and now in my opinion, these continuing issues coupled with an increased debate of QE2 withdrawal in US and expectedly a small rate hike subsequent to the withdrawal and a possible rate hike in UK and select stronger economies of European Zone, will keep a check on western markets, making sure our markets any way do not find a way to move upwards.

The point that the FED and the ECB are missing the dangerous word ‘INFLATION’, with more and more market participants keep on reminding the authorities on the same and given the fact that with a prolonged era of Cheap Money, Inflation is bound to hurt these economies sooner than later.

On the top of all these, there is China…Why was China forced to increase the rates, that too twice within a month; is it due to the phenomenal credit growth, leading to too much money chasing too few goods, thus a check is mandatory, all the more due to China being more vulnerable to social unrests… or to provide a cushion to the structural bear markets China is in, which could have got worsen, if these steps were not taken…

More so, the budget is nearby and this coupled with an expected political instability, Mr. Mukherjee will be in double minds. Whether to make the Indians happy by borrowing more to fund NREGA, Tax Benefits, additional Social Programs, Education & Healthcare or to control fiscal consolidation by keeping a check on all the spendings and take a tough stance. I frankly do not have an answer to these questions, but with allies wanting more for their portfolio and key state elections in West Bengal and Tamilnadu around the corner, one never knows…

These factors, though might sound extremely macro in nature, but markets move on perception, and i believe the perception will be getting a reality check…

Best Regards,

Vinit Tulsyan

Indian Pharma – Real Excitement yet to begin – Who’s next

Abbott Laboratories did not mind paying 9x sales (US$ 3.72 billion) to acquire Piramal’s core business of domestic formulations. Earlier Daichi did not mind paying ~5x sales to acquire majority in Ranbaxy.

The question arises that why will these large multinationals pay exorbitant prices to acquire assets. The rationales in my mind are absolutely simple.

These multinationals are not concerned about the acquired asset starting to add to bottom-line right from the word go but rather they are looking at extremely long term (may be better than 10-20 years). You would pay 9x of sales for any company, only because of few compulsions, compulsions such as:

• A need to be present in one of the largest growing Pharma market,
• The world needs cheap (which are effective as well) drugs and what better than India to provide the world with these cheap drugs,
• With skilled talent availability, why not replicate the same model which India actually taught the world i.e. Outsourcing, outsourcing all high cost activities by making India their global center and apart from bringing in their own cost down, opens a whole new line of business for Abbott
• A leadership or established footprint at one go in one of the largest growing Pharma market with unmatched potential (over 1.2 billion people),
• Finally for a company having market cap of US$ 75 billion, revenue of US$ 30 bililon and US$ 10 billion in cash, paying US$ 3.72 billion hardly has any impact on the company balance sheet that too for such lucrative propositions, as mentioned above.

In my opinion, the Pharma market will see even more costlier deals with a number of Pharmaceutical company across verticals an acquisition target. This in my opinion, also includes, Pharma companies having larger research focus. This is all mainly due to two reasons 1) can you ignore to be in a market having 1.2 billion population and 2) the world needs cheap drugs (outsourcing).

While putting my thoughts together, came across one of the article on web, which I found extremely useful and thought of sharing. Hope you like it…

As top Indian pharmaceutical companies sell themselves off, India’s Rs60,000 crore drug market seems harking back to the 1970s, when it was dominated by foreign multi- nationals.

Just six of India’s top 10 drug makers by market share are controlled by domestic promoters today, down from nine in December 2008.

“At least two more deals (of foreign firms acquiring Indi- an drug makers) are likely in the next 18 months,” said Tarun Shah, founder, MP Ad- visors.

His firm advised Japan’s third largest drug maker, Dai- ichi Sankyo Co. Ltd in acquiring the stake owned by promoters in India’s largest drug maker, Ranbaxy Laboratories Ltd. The $4.6 billion (Rs21, 620 crore) acquisition was the first of the three deals that have changed the equations in the Indian drug industry since December 2008.

It was followed by Hyderabad based Shantha Biotechnics Pvt. Ltd’s acquisition by Sanofi-Aventis AG.

Last week, US drugs and nutrition company Abbott Laboratories announced a Rs17,000 crore acquisition of the domestic formulation business of Mumbai-based drug maker Piramal Health- care Ltd, the largest player in the local market with a market share of 7%.

Global acquisitions have also changed the structure of the Indian market. The acquisition of US multinational Wyeth by the world’s largest drug maker Pfizer Inc. has led sales of their Indian subsidiary Pfizer Ltd to increase. The combine of Pfizer and Wyeth in India has now be- come the eighth largest player with a market share of 3.5%.

And US drug maker Merck and Co. Inc.’s acquisition of Schering Plough worldwide has made the company the 10th largest in India, with a market share of 1.03%, ac- cording to retail market statistics of IMS Health until September 2009.

The combined share of top 16 drug makers in the local market is 56%, or worth Rs33,600 crore, according to retail audit data compiled by IMS Health.

Since new acquisitions and mergers have changed the ownership base in the industry, 23% of this market is now controlled by six multinational companies.

Until December 2008, British drug maker GlaxoSmithKline Plc-promoted GlaxoSmithKline Pharmaceuticals Ltd was the only foreign firm in the top 10, with about 4% market share in the Indian drug market till 2008.

“Till the end of 2008, there were nine companies owned by Indian entrepreneurs out of top 10 with a combined market share of 32.67%. But the new constitution is that top 10 command 41.06% of total market , and four of the them are MNCs (multi-national companies),” said Shah of MP Advisors.

Rajiv Dalal, partner, life sciences practice at audit and advisory firm Ernst and Young India, said the drug market in India will grow exponentially due to increased awareness and economic growth.

“With multinationals’ interest to grow in this market and Indian entrepreneurs’ willingness to en-cash, there could be more acquisitions happening, which will lead to MNCs increasing their market share in the domestic market,” he said.

Thanking You,

Personal Regards,

Vinit Tulsyan