Medpro buy to boost Africa biz sales by 2-3%: Cipla

Cipla's acquisition of South Africa-based pharma company Cipla Medpro is likely to boost its Africa business revenue by 2-3 percent, a top company official said on Thursday.

Cipla Medpro South Africa had informed the Johannesburg Stock Exchange on Wednesday that Cipla's offer had been approved by 99.7 percent of its sharehodlers.

Cipla had to revise the offer twice to win over investors, who had felt the earlier offer, first of which was made in Nov 2012, was too low.

Cipla had a long standing relationship with Medpro and Subhanu Saxena, Cipla's CEO told CNBC-TV18 that the acquisition was like "an old friend becoming a part of the family."

Cipla Medpro had sales of USD 230-240 million last year, and Saxena is confident of growing ahead of the market in South Africa if the deal successfully closes.

The company is yet to receive regulatory approvals for the acquisition. Cipla hopes to receive regulatory approvals by September first week.

Below is an edited transcript of the interview on CNBC-TV18.

Q: Could you tell us more about the synergy possibilities with respect to the acquisition of Cipla Medpro?

A: There are number of synergies for us. Medpro now will have full access to our pipeline of innovation and differentiated products. It will be much more able to prioritize and drive the pipeline versus simply supply what is asked.

We also can bring our experiences from India market much more to the front-end in Africa and help build the franchises like respiratory where we are strong in India and build those further out in Africa.

Clearly, there is going to be opportunities on supply chain and manufacturing. We are evaluating how best Medpro can play a role in scaling up our business in the Southern part of Africa.

Q: You have had a long-standing partnership with Medpro, which contributes to about seven percent to your total revenues so far. How much can this get scaled up?

A: This will add another two-three percent to the revenue line overall. For our African business which is roughly 18 percent of our total, it will go up to 24 percent. We see this as an old friend becoming a part of the family.

Q: Did you have to take any loan for this or were you able to pay for it entirely through internal accruals?

A: We are lucky to have a strong balance sheet. We will fund this acquisition through a combination of cash on the balance sheet and other funding sources as needed. But Cipla is in a very strong financial position. We have done the math and we can easily take on an acquisition this size.

Q: For this year you say that Medpro could increase its contribution to Cipla from seven percent to perhaps close to 10 percent. What’s the longer term view? The split between controlled products and over the counter (OTC) products is about 80:20. Can this increase substantially in terms of increasing the OTC products?

A: We have factored into the valuation of a number of revenue synergies for the business. But if you look at Cipla as a whole, you must also recognize that the rest of Cipla will not be standing still.

I have the fortune of having a number of exciting opportunities to invest in, around the globe. So as we build our South Africa business, we also build our businesses in other parts of the world, primarily through organic growth, and potentially through strategic partnerships also.

Q: What was the total sales of Medpro in the last full year?

A: It was 2.3 billion South African Rand, which is a roughly USD 230-240 million.

Q: Now that Cipla Medpro also gets the additional support of Cipla, how much could you scale up this 2.3 billion Rand in FY14?

A: I am not going to comment specifically on the financial forecast, but clearly we make the acquisition feeling that we can continue to drive strong growth in the business where you can look at the market. We are confident of the market in South Africa and growth in business, should the deal close successfully.

There are still other conditions to be fulfilled. We have to meet certain regulatory obligations and get regulatory approvals, which we hope to have by the first week of September. But when that happens, then obviously we are making such an investment to grow ahead.