India's share in global pharma pie to go up in 20 yrs: Baring PE

Baring Private Equity Partners is bullish on Indian markets and says that India's value accretion potential remains good. After two years, the monsoon is looking good which can spur demand and consumption, said Rahul Bhasin, Managing Partner at Baring Private Equity Partners.Indian pharma companies contribute 6 percent to global pharma sales and Indian pharma companies will gain significant market share in the next 20 years. He said that global debt has gone up since 2008 and that ensures that money stays easy and opportunities for business to grow will be very good, he told CNBC-TV18.Below is the verbatim transcript of Rahul Bhasin's interview to Anuj Singhal and Prashant Nair on CNBC-TV18.Prashant: How is the market looking to you, stock markets you work in the unlisted space and the public markets as well, but let just take to stock market at this point?A: If you look at both value and valuations there are reasons to feel optimistic that value is likely to increase and valuations are likely to increase. At the very simplistic level say that I would be very bullish. It is a very funny world out there because if you look at value, the Indian value proposition is very clear according to me is that our assets turns of Indian businesses have shrunk from their long term average down to about 2.3, just for reference sake and 2008 they were at 4.41, so there is a massive amount of room to catch up there, capacity utilisation of industry has been low. If you look at the fiscal stimulus given in terms of the Pay Commission and look at the fact that we have had a good monsoon after two years of drought, clearly there is going to be more demand and therefore utilisations goes up, assets turn go up, so value accretion is very clear on the Indian side of it.I think the global debt crisis which is there around the world and the fact that after 2008 global debt has gone up by USD 51 trillion rather than come down, that kind of context and scenario around the world will ensure that money stays easy. Therefore in an environment where you are looking at actual growth and opportunities for businesses to grow is likely to be very attractive from even a global investors point of view, but if you look around the world you will find that all markets seems to be going up and it kind of counterintuitive especially when you think of Brexit, you think of these kind of things, but the reality is that when you look at cost of money and your marginal cost of borrowing being almost lower than your dividend yield than it natural that people will look at paying attention to the equity market. I think there is risk in the other parts of the world and that is that people are not looking in asking the question hard enough whether that dividend yield and earning capacity of the businesses that they are looking at, is going to remain where they are at the levels that they are and there is wider social, political issues behind why I feel that they should look at these things, but at least for the moment on the margin I would suggest that most markets are looking fairly bullish and buoyant .Prashant: Where do you see opportunities, what theme should one look at closely from a domestic market perspective?A: My personal view is that you can pretty much look at any kind of business which has long runway in terms of potential demand ahead of it and which has a decent comparative position and I would say that that would be pretty much across the sectors that you will find great investment opportunities across the sectors.Now are there specific things which tactically would make more sense in the short term of course there are, that is always the case but really we are in a very favourable juncture both from a value perspective and a valuation perspective, so all you should look at for investor is look at the compounding stories and play those.Prashant: Drill down a little bit if I may ask you. Looking through your portfolio pharma come across quite a bit, the other is private financial space non-banking financial company (NBFCs). Just talk about those two themes?A: If you look at the pharmaceutical sector, Indian companies today accounts for 6 percent of global pharma sales and if you look at the cluster economics which are in play, if you look at the fact that India has probably more than 10 world class companies. Look at the scale of operation which is already there, you look at the fact that Indian companies have understood that this is a global game and have assiduously over the years built global distribution.You look at the chemistry skills that we have acquired as a country and as an industry for the last 30-40 years and I have to suggest that this is an industry which is going to gain very significant market share over the next 10-20 years and I would be very surprised if 25 years from now that we were less than 30 percent global market share. You can do the math this is a growing industry. It is very clear that in a growing industry in 20 years if you going to go 5x your global market share and you have a domestic market which is likely to grow significantly and India is the world’s lowest cost manufacturer, our pharmaceuticals are one-third the price that’s available in Bangladesh, one-sixth the price that is available in Pakistan.Ekta: Do you think that the Indian pharma companies are essentially over the USFDA hump and things would be smooth sailing henceforth.A: I think you need to look at the USFDA problem in a slightly wider context, because we get very fussed about Indian companies having USFDA issues. It is worth looking at European companies, American companies all companies have USFDA issues. The global pharma, the biggest names in global pharma have had USFDA issues and you have to understand why. USFDA and the science related to the pharmaceutical industry and the testing etc is an evolving space. It keeps on evolving and as they keep incorporating new learning and insights into their regulatory framework, this is going to be continuous issue for companies in this sector worldwide. It is not just an Indian phenomenon.Number two if you think about it USFDA is actually subject to interpretation paradigm. It is not that if you have 5 tick boxes on 5 parameters you automatically get a USFDA approval. Now given the combination of those two things I think that you will have this kind of USFDA friction and according to me it is a big entry barrier. Now are Indian companies over the hump, I think that Indian company’s ability to bounce back to learn from this thing and iteratively improve their processes at least I would say there maybe probably 20 companies in India who have that ability, I think we are definitely over the hump, so the short term bumps will keep coming along the way, but if you take a long term view, it is a fabulous sector to invest in.