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Reduce corporate tax to 25% to kick-start investment: Kiran Mazumdar Shaw

ET Now|
Aug 20, 2019, 02.38 PM IST
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Kiran Mahumdar Shaw-1200

Highlights

  • Quick fixes needed so that short term demand can start kicking in.
  • We are confident about delivering strong numbers this fiscal.
  • Biocon's biologics business is high margin, high growth business.
We are one of the few companies actually expanding our businesses and investing in both brownfield and greenfield projects, says Kiran Mazumdar Shaw, CMD, Biocon. Excerpts from an interview with ETNOW. Excerpts from an interview with ETNOW.


You have been vocal about what the government needs to do, what really is the need of the hour. Why don’t you use ET Now as a platform to put your message out there?
I have been quite candid about what we need to do to get this virtuous cycle of investment, consumption and jobs going. Although there needs to be a much more holistic solution of how to get consumption going, there are many things to be done in terms of investment. There is government spending that will kick start this virtuous cycle. But let me for a moment just focus on India Inc and the private sector.

I believe that the reduction in corporate tax to 25% is extremely important to kick start investment and investor sentiment. I also believe reducing the GST levels and getting rid of the 28% GST will improve consumer sentiments and will bring down the cost of many of these items right from automobiles to white goods. I really think that we need to look at some of these quick fixes and not wait for too long for a very holistic solution.

For the first time, some of the most promising entrepreneurs of India Inc, are quite reluctant to commit to capital. Either they do not feel safe about taking a risk or they do not see an opportunity. This is not bad news but this is very bad news.
When there is no demand and when the demand is declining, why would you get any capital expenditure going? Except for organisations like us who have a very strong export focus, where we are seeing very large opportunities, we are one of the few companies actually expanding our businesses and investing in both brownfield and greenfield projects. We are actually seeing a huge capital investment. Other than that, I do not see much happening in many other sectors because the demand is just simply not there.

Is this slowdown temporary or is this structural? By bringing interest rates down or cutting GST, you may fix the short-term demand more like band aid approach. This is not a long- term solution but somebody has to buy the product at 18%. You may fix the demand in the short term but that is not a long-term solution.
No but that is exactly what I said. I said there is a holistic solution required which also means that you need to basically loosen up the credit flow to consumers. But I do believe you still need those quick fixes because that short term demand is needed to start kicking in some kind of economic turnaround. We cannot be in that kind of no-decision zone forever. We just have to do certain things and follow up with other things that need to be done to boost consumption. If we do not remove the 28% GST, I do not think you are going to have any kind of consumer sentiment boost. It is crazy to have a 28% GST in the first place according to me.

Let us talk about the business outlook and in particular, the biosimilar theme. Is it going to intensify for Biocon in the second half with a spate of new launches? Despite the initial hiccups, would you remain well placed to gain from the favourable push on that front, particularly in regulated markets? What will be the strategy for growth in developed markets?
We remain extremely confident of delivering very strong numbers this fiscal. In some of my earnings calls, I have categorically said that not only are we going to see a good performance in the first half of this fiscal but we expect an even stronger second half because of the launch of biosimilar trastuzumab in the US market.

We remain very committed to that kind of business outlook because I for one believe that even though we have had a surprise entry of Amgen with their biosimilar trastuzumab, the market is huge and we have a very good opportunity to really make a very credible play and I am sure with the kind of early entry opportunity that we have in terms of the few players that exist today, we can do a very good job.

That goes as far as the US market. We have already entered the European market and we are going to see traction there as well. The recent Mylan-Upjohn merger announcement also augurs well for biosimilars in China. Upjohn has a very strong presence in China and that actually could open up huge opportunities for our business going forward for biosimilars in China, which is an enormous market that needs to be tapped into. This gives us a very good opportunity to do so.

To draw a parallel here, Biocon has an old traditional business and a new business; the biosimilar business is high growth, higher margin and a unique business in the USP of Biocon. Can I say that for the next two or three years, the company is on the cusp of a transition where the old business will grow at a slow rate? Could it take 24 months for the transition to come?
You are asking a question which is loaded with perceptions because you must understand Biocon’s legacy business which you call our APIs business and now the newly emerging generics business is not a low margin business. The kind of APIs we are focussing on are specialty APIs which are not low margin APIs. We are also getting into the generics business to make us a vertically integrated company in terms of our small molecules business.

You are going to see a very strong uptick in growth for sure. Compared to our biologics business, the biologics business is a much higher margin business and of course, with the emerging opportunities it is going to have a much higher growth trajectory than the other business.

Having said that, you are going to see very strong growth across our businesses whether it is research services, whether it is our small molecules business or the biologics business and the biologics business is something as you know we want to basically create as a standalone business and we would like to basically take it to the public markets in the foreseeable future because we believe that is unlocking huge value for Biocon going forward.

You have given us overview in terms of where you are headed and it is great to hear you sounding as confident as always but just to address your concerns, analysts say the growth there has been slower than expected on the biosimilar front. While the market share is expected to increase post this, do you feel there could be any other challenges on this front? When do you see the market share increasing for some of these new products?
I do not know where the analysts are getting this kind of perspective on Biocon’s biologics business. Just to put it into perspective, in Q1 you have seen almost a doubling of sales from Rs 250 crore last fiscal to Rs 480 crore this fiscal. I do not think that is slow growth by any stretch of anyone’s imagination. This is high growth, high margin business that has been demonstrated quarter on quarter in the last several quarters in the past.

Going forward, I have said this is going to increase even more. As far as the US is concerned, we have had a very strong entry with our fulfiller. We are very confident that you will see a huge uptick in this particular segment over the coming quarters.

We are very confident that with the increased capacity that is kicking in now, you will see a huge uptick in this performance as well. We are all set to go to the US with Trastuzumab because that is our biggest market opportunity and we are very confident that this will be a big growth driver for us this fiscal and beyond. As far as other markets are concerned, we are doing extremely well. The fact that you have seen this robust growth quarter in Q1 year on year, indicates that we have very strong business prospects for biosimilars.

For instance, Trastuzumab alone is close to a $7-billion market globally and this is the opportunity for a company like Biocon, of course in partnership with Mylan and now Upjohn. If you look at the forecast made by Upjohn in its announcement on the merger with Mylan, you can categorically see that biosimilars feature as a very strong component of their growth story and their growth trajectory. So I do not know where the analysts are getting their information from.

I personally believe there is too much speculation on the account of analysts who have not quite understood this business very well. They need to spend a lot more time trying to understand the dynamics of this business and as a company which is so focussed on biosimilars, which is so uniquely placed, Biocon is the only company that is singularly going to be focussed on biosimilars through its entity -- Biocon Biologics -- with a very large portfolio of products.

We have a huge market opportunity, very good partnerships and we believe that this is a growth story which is a vertically integrated end-to-end growth story which very few companies can boast of.
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