Poly Medicure eyes 22-25% growth in 2-yrs, Rs 100 cr capex

With the government approving foreign direct investment (FDI) in medical devices, Poly Medicure is the company that could be a likely beneficiary of this move. The stock has been one of the star performers of the midcap index and has gained 162 percent year-to-date.Himanshu Baid, managing director of Poly Medicure in an interview to CNBC-TV18 spoke  outlook for the company going forward on back of new regulations.The company has capex plans of around Rs 80-100 crore going forward, which would be mostly funded through internal accruals. The company is targeting a growth of 22-25 percent in the next two years, says Baid.He says the company has plans to focus more on Nephrology products in the future.

With this new regulation in place, the medical devices segment will get separated from the drugs and pharma businss which will help pricing, says Baid. Baid denied any chances of the company being sold to interested parties for good valuaions because he sees India as a very big opportunity to manufacture produts within India and sell them in India. More than 75 percent the company's products till now were exported because the India market till now was very small, he adds.Below is the transcript of Himanshu Baid's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.Ekta: Tell us how much of an opportunity foreign direct investment (FDI) in medical devices is. is it just a roadblock which is cleared or is it something which will allow FDI, foreign institutional investors (FII) inflows to come in much more significantly than before?A: Currently this industry was being clubbed with pharmaceutical industry and because of that there was a lot of uncertainty that how would the capital flow into this companies which are making medical technology because every company which was bringing in foreign capital had to go through Foreign Investment Promotion Board (FIPB) route and that was taking almost six months to a year to get those approvals, some times those approvals denied also. Therefore, now when it comes into 100 percent automatic route, so lot of small startup companies in India which were looking for capital can easily get this capital. Even lot of the companies that had a lot of niche technologies developing in the country -  a lot of these companies were doing outsourcing work for foreign companies and were not able to do their own work, but now with the capital inflow they will be able to get that startup capital to invest more into the businesses and bring out new technologies much faster.Anuj: How is business looking up for this segment because first half was good for you, you had 20 percent sales growth, good operating margins, almost doubling of profit but the base will move up now. So what kind of growth rate can you sustain?A: We are looking at close to 22-25 percent growth rate in next two-three years and the reason is that we are focusing more on the disease burden now, for example we are going more in nephrology products, we are going for products like diabetic care. We are looking at non-communicable diseases, so we are looking in that spectrum and what all products we do not have in that range and we are going to add those products in that range. Today, India imports most of the products in nephrology field like basic products are being imported today. So there is a big opportunity for us to make these products and bring in good technologies, new technologies at affordable pricing.Ekta: Coming back to FDI in medical devices issue, for example if MNC was that keen to invest, wouldn’t they just go through the process of FIPB approval, my point being that will we see a huge incremental upside in terms of FII, FDI inflow in medical devices because there is one bottleneck which is eased?A: I think there are couples of reasons here. One was 100 percent FDI and second important reason is Drugs and Cosmetic Act, Amendment Bill 2014, where the government is including medical devices in drugs and cosmetic act and this bill has been pending from last couple of years in the parliament, if that goes through and as an industry we want that to go through that will have to regulate the medical devices, currently there is uncertainty which devices will be regulated, which will not be regulated, which will deal in import license, which will not be in import license, so because of that many MNCs are holding back the products to bring into India and they are not clear about the policy. The second most important thing here is the price control in medical devices – so that is also hampering the industry because people do not know which product will fall under price control and which will not fall under price control whether we are clubbed with drugs and pharma; pharma industry was struggling because of the price controls. So with the new regulation medical devices get separated from drugs and pharma. Ekta: Based on that do you think that there will be a lot more merger and acquisition (M&A) that could take place maybe there could be some specific and MNC companies that deal with medical devices like Siemens etc might look to acquire domestic Indian manufacturers and would Poly Medicure be interested in selling now to get good valuation?A: No because we see a big opportunity for our company to manufacture more products in the country and we have been exporting products; more than 75 percent of our products are exported. So we want to now focus more on Indian market and expand our growth in India because in India currently the industry size is very small compared to the global size which we have. The global medical device market is close to USD 200 billion whereas in India we are talking about USD 5 billion market. So there is a big opportunity to make products in India, sell in India, and to the nearby regional markets and markets where we are exporting already.Ekta: What about the fact that majority of your business is export, 75 percent is in export. What is the growth rate, which are the countries that you export to mainly, do you have any regulatory risk, something like US FDA vigilance which you might have risk to?A: Our Company is US FDA registered in terms of registration process. We are also US FDA audited facility. However, very few companies in India have got US FDA audited plant. When you look at the market where we are selling our products; we are mainly selling in European market, so more than 50 percent of our export revenues come from EU countries and countries like France, Italy, Germany, Spain, UK, Norway and Denmark – that’s where our major market is. We do a lot of business in South America, which is also kind of regulated market. So our products are more selling in the regulated markets and unregulated markets Anuj: What about your current funding requirements, are you sufficiently funded?A: Currently we have capex plan of Rs 80 crore to Rs 100 crore for next two years and most it will be funded through internal accruals. Ekta: You spoke about US FDA facility which is approved by the US FDA.A: Yes, it’s an audited plant.Ekta: When did the audit take place?A: It happened in 2010.Ekta: So another audit should be due? A: It depends on US FDA agency as to when they want to do an audit but typically it happens once is four-five years. Medical device is not a big area for US FDA right now because they are more focused on pharma side and there are very few companies from India which are exporting medical devices to US, but as more and more companies open manufacturing base in India, US FDA will have a regular office for medical technology companies also.Ekta: You have European Union Good Manufacturing Practice (EU GMP) certificate?A: Yes, we have all the certifications to sell products in Europe and other countries.