GlaxoSmithKline (GSK), the London-headquartered pharmaceutical and consumer goods multinational, will invest Rs 5,220 crore to take its stake in Gurgaon-based GlaxoSmithKline Consumer Healthcare up to 75 per cent from 43.2 per cent. David Redfern (below right),chief strategy officer, GSK Plc, and Zubair Ahmed (below left), MD, GSK Consumer Healthcare, explain what the deal will mean to the local unit and how the latter proposes to move ahead. Edited excerpts of an interview with Dev Chatterjee and Viveat Susan Pinto:
Do you plan to delist the company once you touch 75 per cent? What about GSK Pharma; will you increase your stake in that subsidiary, too?
Redfern: No, there are no plans to increase our stake in the pharmaceutical subsidiary. We are happy with our 50 per cent stake there. We also have no plans to delist our consumer healthcare subsidiary once we touch 75 per cent. The decision to increase our stake in the latter was taken a month ago, when GSK's board came down to Delhi and looked at the potential of the Indian market. The board decided this was the right time to invest further into India.
The business here is growing in its high teens. The open offer is at a 28 per cent premium to Friday’s (November 23) closing price.
We have been fair to the shareholders of the Indian company and we have to be fair to the shareholders of the parent company as well.
How do you react to the charge by institutional investors that the open offer price is not attractive?
Redfern: The open offer price is 380 per cent more than the price of five years ago and offers a 120 per cent premium to the price trading three years ago.
The stock of GSK Consumer is not liquid and offers a good opportunity to Indian shareholders to exit at an attractive price. We are ready to meet any institutional investor to discuss the issue.
In the last few years, GSK Consumer, regarded as a one-brand company thanks to Horlicks, has attempted to expand very quickly into allied areas. You had something called the Vision 2X, where you were looking to double turnover in a span of four years. What next from here?
Ahmed: We have achieved what we set out to do as part of Vision 2X. Now, we are looking at the next level of growth, for the period between 2012 and 2016. Our endeavour is to touch £1 billion, about Rs 8,000 crore.
For that, we have identified certain levers of growth. This includes increasing our distribution presence, especially in rural areas. We currently reach 10,000 villages.
We propose to take that up to 50,000 villages. In terms of retail outlets, our products are available in under a million stores at the moment. By 2016, we hope to touch about 1.5 million outlets in terms of reach.
We also propose to focus on the north and western parts of the country as part of our distribution drive. We are already there in the south and east. We are also focusing on three key categories — nutrition, Horlicks is the key driver here; wellness, where we have Eno, Crocin and Iodex; and oral healthcare.
Can we expect some more global brands into the country, especially after the success you have tasted with Sensodyne?
Ahmed: Certainly, global brands from our portfolio will make their way into India. But we will do it based on market requirement and needs.
In oral healthcare, for instance, we don’t propose to play in the mass segments. It will be niche categories that we will target, where there is scope for market development and growth.
Sensitivity was one such area. Look where it has gone since we stepped in 18 months ago.
We will also not play in indulgent categories.
For instance, in Horlicks, we did creams and cookies as part of the extension of the brand into biscuits.
We have phased that out and now have a portfolio of nutritious biscuits under Horlicks.
Similarly, we have phased out indulgent variants such as maida noodles under Foodles and have instead launched multi-grain noodles, as part of our drive to promote a healthy and balanced lifestyle.
What about acquisitions? The last acquisition that GSK did was in 2000, when you acquired Jagatjit Industries' health food drinks such as Boost, Maltova and Viva. There has been nothing after that.
Ahmed: Acquisitions are something we are constantly looking at. But it has to fit into our scheme of things. That is one. Second, we find valuations steep. So, that is another deterrent. Currently, we have taken the organic route to grow. That is keeping us busy.