Piramal Healthcare to shut down UK unit

Piramal Healthcare Ltd plans to shut down one of its drug units in the UK to help control costs, the company told its shareholders in a conference call from Mumbai. The move means that the company's balance sheet will take a one-time hit of Rs71 crore.

"We realised that within our system we could shift whatever ... we are shifting manufacturing from Huddersfield to other locations and thereby save a considerable amount of cost," chairman Ajay Piramal said. The unit in Huddersfield had revenue of 19 million pounds in fiscal 2009.

Production will be shifted to other units of the company in UK and India. Piramal will have to run validation processes in these before the products can be manufactured there, delaying the revenue flow. This, coupled with high inventory build-up with several of Piramal's clients, will see FY10 revenue from pharma solutions dipping 5 per cent from a year earlier, he added.

Operating margins, however, are expected to improve by 6-8 per cent due to a combination of the shutdown and a focus on high margin businesses including clinical packaging, and early phase manufacturing. With more business being moved to its Indian units, he sees revenue from the India-based custom manufacturing business growing 15 per cent.

R. Ananthanarayanan, director, pharma solutions added that Piramal would continue to operate its two other drug-making units in the UK, including the one acquired from Pfizer in 2006. At the time of purchase, Piramal also secured contracts to make various products for Pfizer.

The US drug giant has renewed about 25 per cent of these contracts, with the rest under finalisation, he said.