'GSK has absolutely no plans to delist the business in India'

On November 26, GlaxoSmithKline Plc announced that it intended to make an open offer to increase its stake in GlaxoSmithKline Consumer Healthcare in India. If fully subscribed, the offer will take its stake up from 43.16 per cent to 75 per cent. The buyback offer sparked speculation over the rationale and timing of the move. After all, it would involve a payout of $1 billion or around Rs 5,000 crore. Following the news, GlaxoSmithKline Consumer Healthcare's shares shot up 20 per cent on the Bombay stock exchange to close at a new high at Rs 3,651.80.
 
GSK has two businesses in India, GlaxoSmithKline Pharmaceuticals Ltd and GlaxoSmithKline Consumer Healthcare. It has a 50.7 per cent stake in the pharmaceutical business. The consumer healthcare business is best known for the malted food drink, Horlicks.

David Redfern, Chief Strategy Officer of GlaxoSmithKline, spoke to E. Kumar Sharma and explained the thinking behind the buyback. Edited excerpts:
 
Do you plan to de-list GSK Consumer in India?
We have absolutely no plans to de-list the business in India. We think remaining part of the two stock exchanges (BSE and NSE) is very important for those investors who wish to remain invested.

So, what is the rationale for the open offer and why now?
It is a combination of several factors. Partly because our business has been growing very well in India and we see lot of opportunity. And partly because we are very optimistic about the prospect of India in the medium term, particularly in terms of consumer spending across the country.

As for why now, again it is partly because we are more confident about our prospects in India, going by its momentum, and because we had a very good meeting last month with the main GSK board directors.

Finally, this is a good moment to bring $1 billion of foreign exchange into the country, with the exchange rate being favourable right now.
 
What new plans do you have for India's consumer healthcare market?
We have an iconic leading product, Horlicks, and we see lot of opportunities for line extensions, new formulations, and geographical expansion for Horlicks. For instance, we want to expand our market share in the North and West of the country, where traditionally, we have been a little weaker. We currently produce and sell 3.5 billion cups of Horlicks a year, and we will need more production and distribution capabilities. We also do a lot of development work here in India. Just outside Delhi, we have a consumer development centre and we will continue to invest in development of new brands.
 
The open offer does not change any of the company's plans. The offer, other than being a very strong vote of confidence, does not change the strategy of the company. There is confidence in the management, led by Zubair Ahmed. Nothing changes there.
 
But $1 billion is a huge amount of money just to mop up shares. Is this the best way to utilise those funds?
We think it is a good investment - because it is a business that we know very well. Sometimes it is a little safer to invest in a business that you have a strong relationship with than spend money on a business you know much less about. This shows very strong support for our consumer business and that is true globally. (GSK has also announced plans to increase its stake in its Nigerian consumer products unit to 80 per cent, paying around $98 million).
 
How big is the opportunity for you globally and what is India's share in your total revenues in this business today?
Globally, it is a 5-billion-pound business and an important part of GSK, and we are going to continue to invest strongly behind it. That is an important message here. The share of India is today just under 10 per cent. It is growing much faster than the consumer business overall, so that share is increasing all the time.