MURALI DIVI, 57 EDUCATION Is a postgraduate in pharmaceutical chemistry from the College of Phar- macy in Manipal, Karnataka, and doctorate in the same subject from the Kakatiya University of Andhra Pradesh CAREER Worked in the US between 1977 and 1984 in pharmaceutical and chemical manufacturing companies Fike Chemicals and Schulkill Corporation Co-founded Cheminor Drugs and Globe Organics to manufacture pharmaceutical bulk drugs with K. Anji Reddy in 1984 Left Cheminor in 1990 to start Divi’s Research Centre, which he later renamed Divi’s Laboratories

The six-feet, well-built Divi’s manner may appear brusque to some, but the stockmarket has shrugged this off, choosing instead to focus on his company’s meteoric growth. From a modest Rs 347 crore in 2004-05, Divi’s Labs’ net sales topped Rs 1,000 crore in FY08. Brokerages such as Motilal Oswal expect a compounded annual growth rate of 26 per cent between now and 2010 for the company. Divi’s Labs is also hugely profitable, with a 44 per cent operating margin in the second quarter of FY 2009.

It all began in 1984 for Divi, a postgraduate in pharmaceutical chemistry from the College of Pharmacy in Manipal, Karnataka. Seven years into working in the US at large specialty chemical and custom pharma manufacturing companies — first as production manager and vice-president of R&D at Fike Chemicals, and then as technical director at Schulkill Corporation — he returned to his home state of Andhra Pradesh to strike out on his own. He co-promoted two companies, Cheminor Drugs and its subsidiary Globe Organics in Hyderabad. These companies, he felt, would leverage his skills in fine chemicals manufacturing that had been honed at the US factories. An indigenous pharmaceutical industry was just making its presence felt in India after the country relaxed its patent laws in the 1970s to allow copying of drugs patented to western drug companies.

His partner in these ventures was K. Anji Reddy, founder of Dr Reddy’s Laboratories, now a top generics company in India. Between 1984 and 1990, they took advantage of the opportunity presented by India’s lax patent laws to copy bulk drugs patented to western companies at cut-rate prices. In that time, Cheminor, a sick company, turned around and became a leading manufacturer of bulk drugs.

But Divi wanted more. The future, he felt, was not in patent-busting. “I wanted to be ready to do business in an intellectual property-compliant regime,” he says. Differences cropped up between him and Reddy, paving the way for his exit in the summer of 1990. Some years later, both companies were merged into Dr Reddy’s.

After he quit the JVs, Divi started small. He launched Divi’s Research Centre, an R&D and consulting company that engineered new manufacturing processes to make known drugs, and sold these to the highest Indian bidder. Divi hired fresh graduates in organic chemistry instead of experienced hands since he wanted “a different mindset”. He personally trained the first two layers of researchers. In 1994, he added a factory, investing Rs 71 crore, and changed the company’s name to Divi’s Laboratories to make bulk drugs using its proprietary processes.

Around the same time, India agreed in the World Trade Organization to respect drug patents from 2005. Indian generics companies were given 10 years to reform. Divi began going after the global generics opportunity — making cost-efficient, off-patent bulk drugs unlike most companies that were still getting their business from copying under-patent drugs for India and other emerging markets with lax patent rules. Even today, Divi’s gets half its business from supplying off-patent bulk drugs to global generic drug firms as well as to innovator companies when patents expire. He also began targeting the market for synthesising new research molecules for western patent-owning drug firms, with the hope of bagging the manufacturing contract when the drug went through trials, and hit the market, a business area that now equals generics. In 2003, Divi’s went public.

The numbers speak for themselves — Divi’s market cap, at nearly Rs 8,000 crore on 15 December, equalled that of Dr Reddy’s on that date. Top multinationals are Divi’s customers, and he is the world leader in manufacturing patent-expired painkiller naproxen, which when he started out had over 20 contenders. Naproxen accounted for about 20 per cent of the company’s sales in fiscal 2008.

Industry watchers say one of Divi’s strengths is focus — while peer companies went all out acquiring contract manufacturing units in the West at fantastic valuations, Divi chose to invest in India. “I believe I can create an asset here in less than six months at nearly half the cost that it is available today (in the West),” he says. “Why waste precious resources?” He has stuck to making bulk drugs (which are formulated into finished medicines), and not diversified into the final product. Jayaram Chigurupati, CMD of biotech firm Zenotech Labs in Hyderabad, is someone who has observed Divi closely. Chigurupati says Divi’s biggest strength is that “he never competes with his western customers” unlike others such as Dr Reddy’s, which also has its own finished dosages business that sometimes even challenges patents of innovators in court.

This single-minded pursuit has also helped him work within his means. Unlike peers who have raised significant debt, Divi’s debt-to-equity ratio is 0.1. “We expect the company to continue with its policy of focusing on organic growth,” says an October report by Motilal Oswal. “Hence, it is unlikely to dilute equity or raise significant debt in the near future.”

Today, where many his age would be planning retirement, Divi is raring to go. “The man is a workaholic,” says Chigurupati, who calls him a “role model”. Divi begins his day with a brisk walk and a frugal South Indian breakfast at 7:30 am before heading to work. Twelve hours of work is compulsorily followed by an hour of Yoga. He counts himself lucky to have his extended family of 100 members, including siblings, nephews and nieces, with whom he gets together frequently in Visakhapatnam, where he maintains coconut and mango orchards. Some of them are in business with him.

Today, says Divi, he is happy, and at peace.

s dot menon at abp dot in

(Businessworld Issue 13-19 Jan 2009)