What Cipla hopes to achieve in Africa through Medpro

When Cipla Ltd informed the bourses on Wednesday that it was in discussions to acquire 51 per cent of South Africa's Cipla Medpro for about $220 million, there was a clear message. And that message was not just about growing inorganically in one of its important markets. Analysts saw it as a move by India's second-largest pharmaceuticals company by retail sales (after Abbott) to get to the front end of the African market. The deal, when concluded, will give it more access to the region and a direct, customer-facing presence in a key export market.

This is crucial in South Africa, where, according to Y.K. Hamied, Cipla's Chairman and Managing Director, the company already has a four per cent market share . "Hopefully, this will help increase the market share further," he said.

Without getting into details, Hamied noted that Africa, as a whole, is a very important market for Cipla, pointing out that the region is the company's second-largest market.

Cipla Medpro, an independent company valued at around $440 million, is Cipla's distributor in South Africa and derives its name thus. It was established in 1993 by Jerome Smith, who resigned last month, leaving the company facing an uncertain future. When it happens, the acquisition by Cipla will put an end to that uncertainty. Currently, the Indian company does not own any equity in Cipla Medpro.

S. Radhakrishnan, Director, Cipla, says: "South Africa is an important market, as 18 per cent of our total exports are to South Africa. And it is a market that is growing 15 per cent per annum. We hope to do better there."

Africa has been an important market for Cipla because of the company's product profile, which includes anti-infectives and anti-AIDS drugs. Back in 2001, Cipla, in a sense, jolted the global pharmaceuticals market with the launch of its affordable anti-AIDS drug, Triomune. It was made available at $300 for a one-year treatment as against $12,000 in the West for a similar treatment over the same duration. The drug is still sold across Africa.

Medpro would be the biggest international acquisition by Cipla, though not the first - officials confirm that Cipla already has stakes in some foreign companies. They add that Cipla Medpro is one of South Africa's fastest growing pharmaceuticals companies and is currently the third largest. It is strong in the cardiovascular, antiretroviral, respiratory and neuropsychiatric categories and is reputed to be the leading provider of chronic medicines to the public and private sector.

Cipla, which saw its income from operations cross Rs 7,000 crore in 2011/12 and net profit cross Rs 1,100 crore, has come a long way from its early days. It was founded in 1935 by Hamied's father Khwaja Abdul Hamied and named Chemical, Industrial & Pharmaceutical Laboratories. In 1960, the year Hamied, the current chairman, joined the company, it had sales of just Rs 50 lakh. Over time, it came to be known for its technology/ R&D, product development skills and manufacturing prowess.

Cipla's shares (face value of Rs 2), which hit a 52-week high of Rs 400.60 on November 7 this year, closed at Rs 387.75 on November 22nd.