Mumbai: Nicholas Piramal India Ltd (NPIL), a leading domestic pharma company, is now modelling its business strategy in the lines of multinational (MNC) pharma companies.

As part of this business model it is not investing large amounts, but seeking lower but steadier earnings growth. The focus is now on the return on capital employed rather than putting more money for higher growth.

"NPIL's business model is akin to those of stable fast-moving consumer goods (FMCG) and MNC pharma businesses," says a report by HSBC Securities and Capital Markets. "The company is not investing large amounts in the business, but has a steadier, and lower, earnings growth model as compared to larger Indian pharma companies [Ranbaxy, Dr Reddy's, Cipla] or even smaller Indian pharma companies [Lupin, Matrix, Divi's, Suven, Shasun]."

In order to capitalise on any opportunity in the pharma space for the developed markets, any company is required to undertake huge upfront investments that has very long-gestation period. Almost all Indian companies, which derive significant proportion of their revenues and profits from the overseas markets, did go through periods of low profitability and ROCE (return on capital employed). NPIL management is clearly focus on ROCE (the current ROCE is 33 per cent) rather than going for additional investments.

NPIL, which has been quite aggressive in acquisitions in a few years back, is now going slow on mergers and acquisitions activities. Acquisitions will not be a growth trigger for NPIL in future. "While NPIL had a good track record in acquisitions domestically, these will cease to be a significant growth driver in future," the report said.

In the last 15 years, NPIL acquired the business of Sara Lee (in 1988), Roche (1993), Sumitra Pharma (bulk drug business in 1995), Boehringer (1996), Rhone Poulanc (2000) and ICI Pharma (2002). As most of the sellers were keen to exit the market, NPIL acquired them at attractive prices, the HSBC report said.

Moreover, it has been able to quickly absorb these companies, rationalise their workforce and assets (real estate, manufacturing sites), resulting in huge synergies. Now such attractive targets are too few in numbers. Moreover, with most other companies eager for acquisition, it is a seller's market, the report said.

The merger of an associate company - Global Bulk Drugs (which was the acquired Sumitra Pharma in 1995, demerged and merged again) - has resulted in the company having US Food and Drug Administration-approved bulk drug facilities. This will facilitate contract manufacturing and custom synthesis.

There is good potential as it has "good relationships" with a number of patent-holders (Roche, Boehringer, Allergan, Boots, Aventis, Novartis). Its strategy of not filing for drug master files and abbreviated new drug applications in the developed markets has resulted in these foreign companies having a relatively healthy relationship with NPIL. To capitalise on these strengths, NPIL has decided to focus on contract manufacturing and custom synthesis.