• MARCH 27, 2000

NPIL–Reckitt JV under strain

Reckitt Benckiser, the $ 3.1 bn parent of Reckitt & Colman (R & C) India is reviewing the company’s joint venture (JV) with Nicholas Piramal (NPIL).

R & C India had transferred two of its over the counter pharmaceutical brands Dettol and Dispirin to the joint venture in which it held 20% while 40% each was held by its parent and NPIL respectively.

The transfer of the brands had hit the valuation of the listed company since the transfers were made without any consideration apart from giving R & C a 20% stake in the JV. Besides, it was also announced at the time of setting up of the venture that henceforth the pharmaceutical products of the parent would be introduced through the JV and not through R & C India.

The joint venture had a turnover of Rs 2.12 bn in the first nine months of FY 2000, a 9% growth over the previous year. This in fact is slightly over the overall formulations growth of 7% shown by the pharmaceutical industry. Companies such as Glaxo India that have a very high percentage of prescription brands have also grown by 9%. It is quite possible that had the brand remained with the listed company it would have grown equally if not more.

However, the impact of the reported review on the stocks of both R & C and NPIL is still not clear since an announcement on the future of the brands is still awaited. If the joint venture splits and the brands return to the R & C fold it would be a definite positive for the stock. (R & C ‘s parent had earlier requested the FIPB for setting up a 100% subsidiary which was rejected.)

NPIL has built a network of relationships with more than half a dozen alliances and joint ventures currently in operation. The importance of continuity in these relationships cannot be overstated. If for whatsoever reason relationships turn sour, it could damage NPIL’s value in the future.

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