Sun Pharma's growth in the last five years cannot be ignored. And neither can its founder-leader Dilip Shanghvi who has become the stuff of legends as he continues to grow and consolidate his Rs 16,080 crore company across the world
Award: Entrepreneur for the year
Dilip Shanghvi
Founder and Managing Director, Sun Pharmaceuticals
Age: 59
Interests outside work: Reading management books. He has just finished How I Did It: Lessons From The Front Lines of Business, a compilation of essays from the Harvard Business Review. He also loves watching Hollywood action movies
Why he won this award: For creating India’s most valuable pharmaceutical company from scratch. And for building one of the most profitable generic drug-makers in the world
Dilip Shanghvi, 59, would like to drive out to the multiplex near his Juhu home and catch the latest Hollywood action movies—just like any other guy. The problem: He isn’t any other guy. “It is getting to be a bit of a bother these days,” he tells Forbes India. People are beginning to recognise the quiet, bespectacled founder of Sun Pharmaceuticals and often point him out to each other. He did manage to watch The Expendables 3 with his family one weekend last month. The franchise that features a veritable who’s who of ’80s action heroes, including Arnold Schwarzenegger, Sylvester Stallone, Harrison Ford and Jason Statham, is just his kind of movie, says Shanghvi. But he knows that at the rate he is going, he may well have to start watching these thrillers at the mini-theatre in his home. Anonymity is no longer an option. And there are many reasons why.
At Rs 16,080 crore revenue, Sun Pharma is now India’s largest pharma company, with 25 manufacturing facilities across four continents. Shanghvi is also the fifth largest complex generics maker in the world. Sun Pharma has grown to be the country’s largest pharma company in the US market, expanding through acquisitions almost every year. All of this has propelled him to the position of India’s second wealthiest entrepreneur, after Reliance Industries’ Mukesh Ambani. With a net worth of $18 billion, Shanghvi out-ranked the far more visible Lakshmi Mittal on the Forbes India Rich List this year.
For investors, though, the real achievement is in the margins that Shanghvi and his team have been notching up. And the higher margins come from international markets, as do three-fourths of his revenues. The company, which prefers to call itself a complex generics maker, has wowed the markets with Ebitda (earnings before interest, tax, depreciation and amortisation) margins of over 30 percent every year (see chart on page 49). On this count, too, it is on top of India’s pharma league-tables. While peers are valued at three to four times their revenue, Sun Pharma trades at close to 11 times its sales.
Once complete, the Ranbaxy acquisition, announced in April this year, will add significantly to Sun Pharma’s value. The all-stock deal is proposed at an enterprise value of $4 billion. Meanwhile, Sun Pharma is still sitting on cash reserves of $1.3 billion, and the market expects more acquisitions.
This heady momentum means that Shanghvi will have to forego more than just a low profile as he navigates Sun Pharma to the next level. Because, quite unlike the past, he will now have to decentralise decision-making and authority to manage the colossus that his company has become. Today, much of his time is spent in creating what he calls “a capable and appropriate structure” for the ever-growing company.
The Launch Pad
Shanghvi’s story is fairly text-book. The son of a pharmaceutical wholesaler, he would read patient information leaflets as a boy in Kolkata—and this sparked an interest in medicines.
After finishing his education from the University of Calcutta (he has a bachelor’s in commerce), he moved to Mumbai at the age of 27. With barely Rs 10,000 in his pocket and some experience at his father’s business, he started his own journey in 1983, at a time when multinational pharma companies held sway over the Indian markets. Shanghvi began Sun Pharma with a small but niche portfolio of five products: These included psychiatric drug Lithosun, which the company still makes. The first factory came up at Vapi in Gujarat soon, and he never looked back.
For over two decades, till 2008-09, Sun Pharma grew at a brisk pace but largely by replicating its early success. In India, Shanghvi and his team had pioneered therapy-focussed divisions (business units that concentrated on a single disease type, for example, cardiovascular, ophthalmology or cardiology), so that they could concentrate on sales to a particular set of doctors. The divisions were created based on market feedback; each had a different logo and name and functioned almost like a separate company. As Sun Pharma made deeper relationships with doctors, and began introducing new therapies, sales began going through the roof. Divisions that typically grew at 30 percent every year were scaling up at 60-65 percent.
Up until 2009-10, the company was run by a close-knit team, largely out of its Andheri office in suburban Mumbai. Like most Indian owner-entrepreneurs, Shanghvi led every major activity, and the buck pretty much stopped with him.
Kal Sundaram, the then India head of GlaxoSmithKline, had been Shanghvi’s friend and confidant for close to 15 years. The two typically caught up once every few months, often for a quiet dinner at the Taj Lands End in Bandra. Sundaram is a suave, dyed-in-the-wool, big pharma professional who had spent many years working all over the world. Shanghvi, who comes across as quiet and reserved, is extremely well-connected. Those who have known him for a while speak of his excellent network that includes several politicians. He sees a variety of visitors from 10 am to 5 pm, whenever he is in his office. Time after 5 pm is set aside for internal meetings.
Shanghvi says regulatory standards are changing globally and Indian companies have yet to recognise this. “We are still playing catch-up,” he says grimly. As a company, Sun Pharma wants to create a zero-tolerance mechanism for non-compliance, he adds. To this end, it is working with external consultants who are auditing and evaluating the factories and the processes. Some analysts fear that the exercise of sorting out Ranbaxy’s quality problems could prove to be a minefield. But Shanghvi says he is confident. “My understanding is that the issue is more of processes at the Ranbaxy facility. There were no issues with the facility,” he says.
(This story appears in the 17 October, 2014 issue of Forbes India. To visit our Archives, click here.)