Asian Markets Securities Pvt. Ltd

I . CIO Forum :

The CIO Forum is AMSEC’s refreshingly different flagship initiative. The Forum is built around creating a conference-based platform where experts across business sectors and geographies share their knowledge with a discerning audience. The exclusive, invitation-only programs arranged by CIO Forum aim to bring together industry experts and investment professionals on a sharing platform. AMSEC leverages its strong industry relationships and chooses experts with experience in senior executive roles at premier companies, senior government officials, and consultants, to provide an ‘inside-the-ring’ view on industry practices, policy developments and pressing current issues. The environment encourages participants to seek clarifications, share best practices, highlight perspectives, and receive opinions and suggestions from peers.

Highlights of past conference programs:

AMSEC CIO FORUM 26 August 2010

GST: THE CHANGE AND THE CHALLENGE
Expert Speaker: Mr. Bobby Parikh,
Managing Partner, BMR Associates

AMSEC CIO FORUM 7 MAY 2010

ENERGY AND INDIA: THE PRIMACY OF OIL ENERGY IN A FAST-PACED ECONOMY
Expert Speaker: Mr. Vikram Singh Mehta
Chairman Shell India

II . Knowledge Frontier Series :

The Knowledge Frontier Series is yet another innovative initiative of AMSEC that aims to bring together company managements and investment professionals on a common platform. Through events arranged under the Knowledge Frontier umbrella, senior managers from companies provide insights into their companies and emerging trends in the sector. The Knowledge Frontier platform helps AMSEC add value to the services and live up to its tenet of “delivering consistently what is important to clients”.

Highlights of Knowledge Frontier programs

AMSEC - Knowledge Frontier Series April 27, 2010
‘Indian Pharmaceutical Industry — a prescription for growth’
Expert Speaker: Dr. Bomi Gagrat
Executive Director, Pfizer Limited

AMSEC CIO Forum 26 August 2010.

GST: The Change and the Challenge

On 26 August 2010, renowned tax expert Mr. Bobby Parikh made a presentation on Goods and Services Tax — a Transformation in the making. The event was arranged by AMSEC as part of its CIO Forum initiative. Mr. Parikh is Managing Partner at BMR Associates. Mr. Parikh stated that speculation on when GST would be implemented is no longer relevant. The final direction is clear and preparing to meet one of the biggest tax initiatives of the country would be a great challenge.

Highlights

GST —The Global experience :

GST operates in 150 countries since 50 years. Global average tax rate is 18%, varying from 5% in Japan to 25% in Sweden. Canada and Brazil have evolved a dual GST, which India seeks to emulate.
The global experience has been consistent : GST has engendered economic growth, eliminated cascading of taxes, reduced cost of compliance, increased transparency and effectiveness of the administration, and promoted a common market. It has also helped reduce cost of production and promoted exports.

GST in India :

GST will subsume a number of current levies: At the central level Excise Duties including additional excise duties; at the state level these include: VAT/ Sales tax; etc.
India will adopt a dual GST structure. Every transaction would be subject to: Central GST (CGST) to be levied by the Central Government and State GST (SGST) to be levied by the respective State Governments. An integrated GST (IGST) model is proposed for inter-state transactions.
The main features of GST are:
- It will be uniform across transactions.
- Each state would have its own GST legislation with uniform basic features. A common threshold of INR 1 million for CGST and SGST for both goods and services is proposed.
A three-year transition rate has been proposed.
Input taxes will be creditable or refunded.
Taxation on imports and exports will change.
Operation of incentive schemes will change too.
Legislation and implementation: the ground covered to date:
- Agreement on dual rate of taxes, model for taxing interstate sales, actual rates
- Broad agreement between states to harmonize rates, laws and rules
- General consensus that GST is a needed reform
- Group identified to support IT architecture for GST; WIP
- High level of understanding with tax department of States on how GST will work
Legislation and implementation: the ground that remains to be covered:
- Center should get power to levy tax on intra-state sale of goods
- States should get power to levy tax on services
- Center should have the power to levy CGST on goods and services
- States should have the power to levy SGST on goods and services
- Center should have exclusive power to levy IGST on inter-state transaction of goods and services
- Should levy GST on the supply of goods and services instead of sale
- Parliament would not be empowered to levy surcharge on GST
- Finance Minister agrees to surrender Veto Power

What businesses need to do to be prepared for GST?

Companies need to understand how GST impacts: cost and credits; taxes and liabilities; pricing; segments and product lines; and withdrawal of exemptions
Companies need to identify issues for transition and isolate areas of major impact
They need to create internal teams, internal training and orientation programs and make GST a central function.
They need to understand the overall financial impact in terms of:

Tax bill (savings or increase)
Impact on cash flow and tax management
Impact on credit accumulation and utilisation
Re-configuring the supply chain, especially with respect to procurements and warehousing
Relying on transportation efficiency, in case of change in warehouse locations
Looking at the impact on pricing and opportunity to reduce trapped tax costs
Understanding the position for distributors (maintaining margins, protecting against additional tax costs etc was a sensitive issue during VAT implementation)
Bringing about internal changes (retraining, accounting, data capture, incidence and point of levy of taxes, familiarization of new taxes across the organization)
Implementing significant ERP changes
Analzing competitor reactions and changes arising from GST
Managing transition smoothly and minimizing cost of transition.

AMSEC CIO Forum
7 MAY 2010
Energy and India: The primacy of oil energy in a fast-paced economy”.

Mr. Vikram Singh Mehta, Chairman, Shell India, delivered the keynote address at AMSEC’s CIO Forum held on 7 May, 2010 at Trident, BKC. He shared his expert insights on “Energy and India: The primacy of oil energy in a fast-paced economy”.

Highlights:

Global scenario:

Demand for energy is accelerating: China and India are entering their most energy-intensive phase of economic development.
Supply will struggle to keep pace with demand: Access to easy oil is becoming difficult. While demand from the OECD countries is declining, that from developing countries is increasing.
Environment is under stress: Concentration of CO2 in the atmosphere is not something that can be wished away.

Indian scenario:

Demand is growing: India is a high-growth economy, life-style patterns are continuously changing, and the country is an inefficient user of energy.
Supply situation in India is far from robust: The demand-supply imbalance is compounded by an insignificant contribution of alternate energy sources as exemplified by the rising import-dependence ratio.
India is an inefficient oil and gas producer: GoI and ONGC have reduced their Eleventh Plan targets.
Incessant rise in oil prices add to the woes: Oil prices globally are inherently volatile, led by demand, supply, and geo-political factors as well as non-fundamental issues that relate to speculation, dollar exchange rate, and infrastructure costs.
Concerns on E&P are even more serious: India is not on the frontier of E&P technology due to an inherently bureaucratic structure of tendering for technology.
In marketing and refining, adhocism with pricing is a major concern: In 2002, GoI regulated and market-determined pricing came into effect and it has not been reversed. The oil marketing companies are making losses of ~Rs 6 billion a day. The more dramatic impact of all this is the lack of investment in research and development.
Gas is a great white hope, but it calls for massive infrastructure: Gas needs infrastructure, tankers, re-gasification terminals, or pipelines since it is not easy to store, which in turn require significant investments and a transparent regulatory environment.

Human resources would prove a major challenge: Harnessing the right combination of experience and capabilities is the big challenge before the Indian oil companies.

AMSEC - Knowledge Frontier Series
‘Indian Pharmaceutical Industry — a prescription for growth’
Dr. Bomi Gagrat was expert speaker at AMSEC’s Knowledge Frontier Series held on April 27, 2010. In an enthralling one-hour session on ‘Indian Pharmaceutical Industry — a prescription for growth’, Dr. Gagrat spoke to a select group from India’s investment community on the prospects and challenges for Indian the pharmaceutical industry.

Highlights

A new world order is emerging: Advanced economies are slowing down and emerging economies are driving global growth. Developing countries are growing rapidly, driven by strong economic fundamentals and domestic consumption demand. Thus, the impact of the current economic slowdown on these countries was less pronounced and they are showing early signs of recovery. The BRIC (Brazil, Russia, India, China) countries are projected to be among the six largest economies by 2040. China is expected to overtake the US by 2035 and emerge number 1 and India would overtake the US by 2050 to take the second lead.
Global Pharma growth slows down: This slowdown is underpinned by reducing R&D productivity, fewer blockbusters, and increasing ‘market genericization’. The global pharma market grew 7% in 2009 and this is expected to slow down to 4–6% in 2010; economic recovery and large patent expirations would help the industry register 5–8% CAGR over 2010-14
Emerging markets take center stage: Emerging markets are expected to grow at 14–17% over 2010-2014, whereas major developed markets are expected to grow 3–6%. Increasing growth challenges in regulated markets and projections of growth being driven by developing markets such as India, China, and Brazil are prompting this strategic shift. The US would remain the largest market, with an expected 3-6% growth annually over the next five years. Big Pharma has started to focus on entering the global generics space, and in particular the generics business in the developing markets. A spate of announcements over the past few quarters by Big Pharma companies including GSK, Aventis, Pfizer, Astra Zeneca, Fresenius and Daiichi point to this trend.
Indian pharma is ready for the big leap: The Indian pharmaceutical market (IPM), which is valued at US$ 9 bn in 2009, ranks fourth in volumes and fourteenth in value and is projected to emerge the tenth-largest market by 2015. Home-grown companies dominate the market with 82% share. The major drivers for this market are changing prescription dynamic, product innovations, geographic penetration, Increasing disposable incomes and healthcare spend, changing disease patterns, and growing penetration of medical insurance.
The patent scenario is not encouraging: In 2005, product patents were reintroduced and patent protection was extended to twenty years, compared with seven years provided in the 1970 act. In India, however, there is no patent linkage. This means that marketing approval issued by DCGI is not linked to the patent status issued by the patents office. A case in point in Nexavar (Sorafenib) from Bayer, which was issued a patent by the patent office; however, Cipla also got permission from DCGI to market the generic version, which became legal contention. There are still no express provisions guaranteeing data exclusivity to original researchers. Until these anomalies and fallacies are addresses, companies will not find the scenario conducive to introduction of new products.
The pricing scenario is challenging: The government formed a National Pharmaceutical Pricing Authority that monitors and fixes prices of bulk drugs and formulations under a scheduled list. Currently 30% of the pharma market is under this price control mechanism. The government maintains vigil on the balance, monitors periodic price increases, and questions those that have risen more than 10%. The industry anticipates regulatory intervention in the launch price of patented new drugs.
Most therapeutic areas have displayed strong: As of January 2010, growth has been robust across therapeutic areas (TAs), with Indian pharma growing 17.2%. Growth across segments was as follows: Anti-infective –14.6%; Cardiac –18.8%; GI 17.3%; Respiratory – 19.6%; Pain –16.4%; Vitamins and Minerals – 16.6%, Gynaec – 16.9%; Neuro and CNS – 20.2%; Derma – 20.1%; and Anti-diabetic –22.1%. Top companies accounted for 60% of the total market, led by Cipla with 5.4%, Ranbaxy with 4.9%, GSK with 4.3%, Piramal with 4.1%, Zydus with 3.7%, Sun with 3.7%, Alkem with 3.2%, Pfizer with 3.0%, Mankind with 2.8% and Lupin with 2.7%. Successful companies have a presence across TAs and are among the top five in at least two to three therapies.
Industry structure is fuelling consolidation globally: Building scale, establishing a global footprint, and acquiring a diversified portfolio has been a common theme across deals. Major landmark global acquisitions in the past few years are Pfizer’s acquisition of Wyeth, Merck’s acquisition of Schering Plough, Daiichi Sankyo’s acquisition of Ranbaxy, Mylan’s acquisition of Merck KGaA, Fresenius Kabi’s acquisition of Dabur Oncology, Teva’s acquisition of IVAX, and Mylan’s acquisition of Matrix Labs.
Challenges abound for outbound M&A in Indian Pharma:
- Integration issues with past deals has put a brake on further expansion; for instance: Dr Reddy’s Betapharm faces pricing pressures in European markets, Wockhardt’s European acquisitions facing similar issues, coupled with mounting debt troubles
- Increasing pricing pressure in generics is rapidly eroding margins
- Ongoing consolidation in generics and Big Pharma’s foray in this space has increased competition
- Industry trends and ongoing consolidation present unique alliance prospects
- Big Pharma’s foray into generics has led to partnerships offering low-cost base, wide portfolio and manufacturing capabilities: E.g. Pfizer’s sourcing tie-up with Aurobindo and GSK’s with Dr Reddy’s
- Need to de-risk business through global footprint in generics enhances potential for inbound M&A deals: E.g. Acquisition of Indian assets by Generics’ majors Mylan, Actavis and Teva Ranbaxy’s acquisition by Daiichi Sankyo might set the trend for future deals
Custom manufacturing presents a massive opportunity: Global pharma outsourcing stands at $ 33 Bn; outsourcing accounts for 24% of pharma manufacturing spend and has grown at 13% CAGR during 2007-10. The Indian market accounts for $ 1 Bn of the total spend; it has been growing at 43% and is estimated to reach $ 2.3 Bn in 2010. India’s share of the global outsourcing market has grown from 2.8% in 2007 to 5.5% in 2010. API/Intermediate outsourcing dominates with 64% share.

India offers advantages of quality, skilled manpower, talent, and cost benefits. Manufacturing costs are 65% lower in India than in the US and 50% lower than in Europe. Cost of installation of a USFDA-approved plant in India is 30% lower than in US. India’s pool of trained chemists and pharmacists is six times the size and one-tenth the cost in the US; India accounts for 3% of global drug discovery and development outsourcing and offers 61% cost savings versus the US.

MNC Pharma in India—a new era is unfolding:
MNC Pharma companies are executing India-focused strategies through:

increased investments;
sharp ramp-up in field force (after a lull of several years GSK increased its field-force by 200 to support growth in its vaccines, oncology and other specialty segments; Sanofi Aventis added 300 people under a rural market division launched recently);
marked step-up in new product launches;
increased promotional spend;
India-specific pricing (Merck launched Januvia at significantly lower price compared with US and European price levels)’; and
enhancing market penetration.

MNC Pharma companies are also adopting rural marketing strategies. Some of the diverse success strategies of these companies include: branding, pricing, sourcing, positioning, indication roll out, market development, clinical development, and technology.
Foreign companies view India as a significant contributor of future sales and they are ramping up investments in the country. Several overseas companies have outsourced research and clinical trials to Indian contractors and others have entered into collaborative R&D arrangements to supplement their R&D productivity.