On December 16, GlaxoSmithKline plc announced an open offer in which it intends to buy about 25% stake in its Indian subsidiary, GlaxoSmithKline Pharmaceuticals. The move will take the company to 75% stake in the Indian firm, the maximum allowed for promoters under existing laws.
Also read: Parent co announces open offer for GSK Pharma at Rs 3100/sh
The announcement comes a month after the company announced a Rs 850-crore investment. Both moves signal the company’s long-term focus on the Indian market.
CNBC-TV18 spoke with David Redfern, Chief Strategy Officer, GlaxoSmithKline plc, to discuss the open offer, the subsidiary’s current state of the business and its plans.
Here is the transcript of the exclusive interview.
Q: Can you give us the rationale behind hiking of stake?
A: India is a strategically important market for GSK. We have a long history here, the pharmaceutical business dates back to over 90 years even longer for the consumer business.
So we take a long-term view and this is a demonstration of a further commitment of investments into India and into our pharmaceutical business. We are positive about India, the country is developed, the healthcare needs it will have [will rise] and we think we continue to make major contribution by bringing new methods and new vaccines through GSK Pharmaceuticals to India.
Q: Are you likely to follow-through from 75 percent to maybe 100 percent as well?
A: No, we have no plans to do that. We think it is important to keep the company listed and we intend to do so.
Q: You are paying up a hefty premium. How do you justify it to your own shareholders? Are you expecting decent growth in the coming years?
A: It’s a very fair premium to the Indian shareholders. The stock was up about 20 percent in the previous 12 months, and now it’s up another 20 percent -- so over 40 percent return in the last year.
It’s a good price to the Indian shareholders but from the Plc perspective, India is a strategically important market; we see a strong volume opportunity in India through our range of medicines and also, increasingly, important vaccines, and we think we can continue to grow the business strongly over the medium and long term.
Q: You were talking about the long-term fundamental growth of GSK Pharma. What are the investments that GSK Pharma will make in the next one year perhaps to increase capacity etc?
A: A lot of the products that we sell in India are made in India. It is a very Indian business and we continue to invest in manufacturing capacity. Mr. Andrew Witty, CEO, GSK, was here last month and he announced an investment of about Rs 850 crore in a new manufacturing facility.
We haven’t decided on the location but it is likely to be Bangalore, which is the lead site, and the facility will come on in the next few years and will be running in 2017.
We also have an important vaccines’ joint venture with a Hyderabad-based company, Bio E. We continue to invest with Bio E and it will take some time to start to manufacture vaccines for the Indian market in India.
Q: Your last numbers were a bit disappointing; you had reported 7 percent decline in income and 33 percent decline in standalone net profit. How will sales move from hereon for this year and next?
A: This has been a tough year for GSK Pharmaceuticals in India. There have been a number of issues, the price controls which have impacted products. We think we are largely through with most of that now and we take a long-term view.
We have been here for a long time, we have seen price controls before but overall we think the long-term fundamentals are positive and there is growing demand and growing focus on healthcare and a huge volume opportunity in India as the population grows and we can make a major contribution bringing vaccines and medicines to the country and growth the business strongly over the foreseeable future.
Q: The new facility which is likely in Bangalore is likely to be price-control drugs or would it be over the counter (OTC) drugs?
A: It will be predominantly pharmaceutical drugs but it will be whole range of medicines.
Q: Are you looking at any inorganic moves within the Indian market because there is about Rs 1,800 crore worth of cash in GSK’s books?
A: Our primary focus is organic growth. We have a strong business here; Glaxo has been around for a long time and we have very broad range of products and we have a great opportunity to continue to develop business in India organically.
I wouldn’t absolutely rule out opportunistic investments but it is not the focus either at GSK internationally or GSK in India. We have got plenty to do organically.
Q: One follow-up to the point you were making about the National Pricing Policy, there are some analysts who are worried about the NPP affecting Augmentin and there could be an impact to the tune of around Rs 400 million or so going ahead. What would your view be on what the impact be on Augmentin could be going ahead?
A: I think the price impact is largely played through, the price control has impacted some products like Augmentin but there are other products that are been taken out of price control, [so there are] gain as well as losses.
I think that is largely playing through and I think there are great volume opportunity so we are optimistic about Augmentin and we are optimistic about the whole business.
Q: When will Rs 850-crore facility start giving you profits?
A: We are hoping for the facility to come on line from 2017.
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