THE RIGHT PRESCRIPTION

In 2015, a nondescript Delhi-based pharmaceutical company, Brawn Biotech, had left numerous analysts in brokerage houses across the country puzzled. Very little was known of Brawn. The company operated out of an office in the same building in Old Delhi that houses the Delhi Stock Exchange and even though it had been listed for over two decades, only a handful of brokerage houses actually covered the company. Yet, in 2015, as the dust settled on the performance of various firms on the Bombay Stock Exchange, the company's share price had risen a whopping 528 per cent during the course of the year making it one of the top 15 best performing stocks of the year.

The company is engaged in marketing of medicinal and allied health products and has a well defined marketing network with a staff of over 180 covering major hospitals and institutions in India. It does not have a manufacturing facility of its own but leans on another unlisted firm-Brawn Laboratories-for its supplies. Brawn Biotech's staff merely markets a large variety of finished formulations and other health care products. Its distribution penetration includes a central depot at Gurgaon and 8 consignee agents across India.

The big reason for the stock to outperform the way it did in 2015 and, hence, for the company to make it to BT best performing small and medium enterprises list, was its entry into the export market. Typically, margins in exports in pharmaceuticals or in any other business for that matter, are higher than the domestic market. As such, Brawn Biotech's entry into the export market in 2013/14 resulted in a quantum jump in its revenues and growth. Its export revenues grew 21 per cent during 2015/16 and it is likely to close 2016/17 with revenue of `55 crore, a growth of 25 per cent.

It is no surprise, then, that in 2015/16 the company announced a dividend for the first time ever. For the promoters-Brij Raj Gupta and his family-it completes a full circle. A journey that has seen the company reduced to a penny stock in 2003/04 when its shares traded at under `2. "I cannot thank enough my shareholders who have been with me all this while but I really need to look hard for anybody who has actually remained invested all along," says Gupta in the Faridabad factory of his other unlisted company Brawn Laboratories. "Between 1995 when the company was listed till 2005, we have seen hell. Even my brother A.K. Gupta and everybody else wanted me to sell out."

Gupta however, stuck to his guns. Born and bred in a lower middle class family in Delhi, he harboured an ambition to become a doctor since childhood. That dream, however, was handicapped by his poor academic record. "I don't know how I managed to clear all those exams-10th, 12th and graduation," he says. "But I had to do something in life so I became a medical representative."

Gupta started out in 1973 with Northern Pharmaceutical Industries and within a span of 10 years, he had garnered enough knowledge and forged sufficient relationships in the industry to start his own company. Yet, starting a manufacturing company was a capital intensive exercise and in those pre-liberalisation days, raising funds was an even tougher exercise. "So we started what is referred to within the industry as loan license arrangements with two Okhla based companies for manufacturing our products."

Very soon, the Guptas realised demand for their generic drugs, capsules and serums was so strong that the two companies could not meet supply. They bought a defunct drug factory on the outskirts of Delhi - it is the only asset owned by the brothers. For the expansion of Brawn Pharmaceuticals that was established in 1985, an Initial Public Offering was launched in 1995. The name of the company was changed to Brawn Biotech in 2010.

"In 1995, we spent `75 lakh in bringing up the IPO. It was oversubscribed by 10 times and we managed to raise Rs 3 crore," says A.K. Gupta, the elder of the two. Yet, the public issue did not prove to be the springboard for success the brothers had visualised. Instead, things went awry soon after. A steep decline in demand in the domestic market largely due to increased competition saw their order books run dry. At the same time, adverse taxation-the pharmaceutical industry suffers from inverted duty structure with raw materials being taxed higher than end products-meant a drag on their profitability. "There was payment due from us to our creditors and the pressure was unbelievable. We suffered heavy losses in the domestic market," says Gupta. The first signs of a turnaround in 2005 were visible in Brawn Laboratories almost by default thanks to a freak visit by Brij Gupta to Vietnam. The salesman in him quickly realised the potential for generic drugs in South East Asia and Africa. The company quickly ramped up its presence overseas. The rub-off effect on the listed entity also pulled Brawn Biotech out of red. The company is now on a firm footing and Gupta is thinking big. He has set up a small research and development wing in Gurgaon. The company is also gearing up to enter the US, considered one of the toughest markets in the sector.

With the long dark nights behind them, Brawn Biotech is now gearing up for bright sunshine.

@sumantbanerji