The trick is to acquire businesses globally and achieve a critical size, says CMD Velu.
If ambition is the path to success, GSK Velu, CMD of Trivitron Healthcare, is set to take the company soaring. The simple and courteous Velu, in a conversation with BusinessLine, talks about why the company, which has made an impressive turnaround from an almost 100 per cent trading company as late as 2010 to a big medical devices manufacturer today, is focusing on more than two birds at a time. Excerpts:
Trivitron has been making aggressive acquisitions globally. What are the changes that have taken place in the recent past?
For the past five years, our focus has been on changing from trading to manufacturing. And that has happened more or less. We have nine factories in five locations — Chennai, Mumbai, Pune, Helsinki and Ankara. A lot of investments have gone in. We were a 100 per cent trading company in 2010 and today, 85 per cent of our profits and more than two-thirds of our revenues come from manufacturing.
But, of course, we left certain large trading businesses, such as Boston Scientific and Fresenius, many of which we built in India. So, we lost a lot of trading revenues and converted all of that into manufacturing. We could have had both, but somewhere we had to focus on becoming a manufacturing company.
What about the future?
We want to focus on manufacturing, which also means contract manufacturing. In the next two-three years we want to become a large contract manufacturer for other multinational companies. That, I think, will be a big growth driver.
Also, we intend to do acquisitions, both in India and abroad. In this financial year, we have done one in Turkey and we are looking at a few more in the cardiac devices space.
Currently, most of our revenues are coming from two verticals — imaging and diagnostics. We have limited presence in intensive care and operating room and in renal care. We are also looking at implantable devices as an area of growth so that we truly become the only surviving multi-modality medical device company.
Big MNCs already have a significant presence in the multi-modality space. Why do you feel that is the right business model instead of focusing on one segment?
We have taken a similar strategy (as MNCs) because the segment is the same. If you go to a hospital, your marketing, sales and logistic costs are the same. But if you put more products in your basket, it makes the business model more interesting from the very long-term perspective. In the short term, of course, it is very challenging to really invest in each segment and grow.
You want to focus on contract manufacturing as a growth area. However, most MNCs already have manufacturing capacities in the region, such as in China or Taiwan, and prefer to import...
That’s a problem. Many MNCs have that philosophy because a lot of companies have made large investments, particularly in China.
That’s why we are asking the government to incentivise manufacturing and disincentivise imports.
Internationally, the import duties on medical devices are 15-20 per cent but in India it is 0-5 per cent. So, we are saying there should be a difference between raw material import and finished goods import so that manufacturing flourishes.
Last year, this change happened for some devices such as x-rays, CT and MRI machines, ultrasound machines, but it didn’t happen for diagnostic equipment and many other medical devices. There should be a clear 15-20 per cent difference between raw material imports and finished goods imports. That will motivate multinationals to either manufacture on their own or go for contract manufacturing, like in the pharma industry where no company can survive in India without local manufacturing because the finished drugs are at very high import duties.
We are surviving mainly because of our export income and international revenues.
Why have you taken the M&A route to growth?
We feel medical technology cannot be done just by greenfield expansion. This is a very brand-conscious industry. When you buy something from a GE or a Roche, you already feel it’s good. So, we need to create a brand.
Many start-up companies are created to be acquired by MNCs. Our focus will be the same. If we see some good start-ups we try to acquire them. We are still a marketing and services company. For generic products, such as x-ray or ECG machines, we want to do it on our own. But, for products where there is a huge technology element, we have only two choices — either find a small or medium-sized technology company and acquire it or go to a large multinational and collaborate with it. That’s the model we are following.
Trivitron is witnessing about 10-15 per cent growth every year. What are your projections, going forward?
Organically that is the kind of growth we expect to sustain. But inorganically, we expect that to speed up our growth. We first wanted to consolidate imaging and diagnostics. Now we are looking at whether we can get into one more area of medical technology, which is cardiac devices. It will probably take another five months.
How are your acquisitions impacting your presence domestically and globally?
That is a dual strategy. For a few products we want to be a global player. In another 10-15 products we want to be an emerging market player.
When we acquired (Finland-based) Ani Labsystems we didn’t try to cater to the European market. We got it for technology — such as newborn screening and point-of-care technology —which is necessary for growth markets. Now we are doing technology-absorption in India.
What about domestic competitors?
In India most device companies are single-focus. There are no Indian companies that are present in multiple segments. That is the most difficult dream for us as a medical device company.
We are present in five verticals and we will enter another couple in the future. Once these seven verticals, which are today in their infancy, reach a certain size, we can see the scale. All the MNCs (GE, Siemens, Philips, etc) did this — they acquired businesses and achieved the size. We are trying to do that in a smaller scale in India.
We have been able to achieve some scale in in-vitro diagnostics and imaging, both in India and globally. In India, we are present in other areas, such as renal care, operating room and intensive care. In terms of market share we are still in single digit in most of these product lines.
You have set up the infra. What comes next?
In the past three years we focused on going from 0 to nine factories. For the next few years, our focus will be on ensuring that our factories’ capacity utilisation, which is right now at 5-10 per cent, goes up to 50-60 per cent.
If they reach even 50 per cent capacity utilisation, we will already be a Rs.2,500-crore company.