Lupin, master of small acquisitions, plans big now

At a time when promoters are leaving no stone unturned to seek rapid growth, Lupin is an outlier. While its peers such as Sun Pharmaceuticals has achieved rapid growth through big bang acquisition of Ranbaxy Laboratories worth $3.2 billion, Lupin announced acquisition of Brazilian company Medquímica for an undisclosed amount. Analysts estimate the cost at about $100 million but it will help expand Lupin's presence in Latin America.

Medquímica is third such acquisition in about a year and half time in an inorganic growth strategy that is described by bankers as string of pearls. Last year it acquired Mexican company Laboratorios Grin to expand its presence in Latin America and also Nanomi in Holland to access technology for complex injectibles. All these acquisitions are so small that the company never disclosed its size but now it plans to grow them organically and make them big.

But this can soon change. The company has now increased its focus on inorganic growth and exploring opportunities to add product and technology platforms as well as gain access to new markets inorganically in a bigger way. “Spotlight this financial year is on M&A, certainly you could expect more on M&A front going forward,” says Nilesh Gupta, 41 years old managing director at Lupin.

Investors love the billionaire Desh Bandu Gupta-promoted company that achieved maximum growth of 114% to in its share price amongst Nifty 50 last financial year. Its revenue has grown to Rs 12,599 core in the last financial, up from Rs 4,773 crore in 2009-10, despite no big bang acquisitions. “So far in M&As we have been very light, but that is changing to a certain extent now,” says Gupta who plans to acquire speciality drug companies in the US, Europe and Japan and also acquire companies to gain technologies in the US, Europe or Japan that can help it grow its products in segments such as dermatology.

"When a company does a large transformational acquisition both the upside and downside is huge," says Manisha Girotra, CEO at global investment bank Moelis & Company in India. "Lupin follows the strategy of doing small acquisitions and then grow it organically, it is a strategy that has suited them well," she says explaining how companies take different approaches to inorganic growth.

Date	Company	Country	Purpose
May 15	Medquimica	Brazil	Expansion in Latin America
May 14	Laboratories Grin	Mexico	Expansion in Latin America
Feb 14	Nanomi	Holland	Access to complex injectibles

The company in its earning guidance has said that it expects a 25% of its expected revenue of $5 billion in 2017-18 to come from acquisitions. It is today net debt free and has net worth of Rs 8,800 crore. This will help it easily leverage during acquisitions worth similar amount while maintaining a healthy debt equity ratio of 1:1.

“Given the strength of the balance sheet, the company is open to small and large acquisitions, which would be funded through internal accruals or external borrowings,” says Aarthisundari Jayakumar, analyst at Elara Capital.

Nifty		Price in Rs(March Ended)		Change%
CO_Code	CO_Name	2013	2014	FY14
5656	HCL Technologies	397.98	695.25	74.69
17215	Tech Mahindra	264.79	448.64	69.43
252	Hindalco Inds.	91.50	141.70	54.86
FY15
		Price in Rs(March Ended)
CO_Code	CO_Name	2014	2015	FY15
3026	Lupin	935.90	2007.05	114.45
25267	Yes Bank	413.50	815.55	97.47
5554	Axis Bank	292.09	560.40	91.866