The Young & The New
Adar Poonawalla is moving away from fast cars and flamboyance, and into new areas like hospitality and real estate
Photo Credit : Shutterstock, Umesh Goswami,
The Indian derby, the stud farms, and a fleet of luxury and vintage cars are some of the images associated with the Poonawalla brand. Few know that the name also spells the world’s largest vaccine maker and India’s front-running biotech company. The Poonawalla family has always kept its business profile low and instead pursued a dazzling lifestyle characterised by fast horses and cars. But the scion of the group, Adar Poonawalla, now wants to move the $7.9-billion Cyrus Poonawalla Group beyond horses, cars and even vaccines.
New thinking in the group is eyeing a set of non-traditional businesses, including realty development and hospitality; there is also passion for healthcare, education and environment. Adar, the 35-year old executive director and CEO of Serum Institute of India, the group’s flagship vaccine and biotech unit, took over the reins of the privately-held company from his billionaire father Cyrus Poonawalla five years ago; but he now wants to go beyond the company’s traditional business horizon.
The young Poonawalla revealed another side to his persona when he recently launched a Rs 100-crore clean-city drive in Pune. However, his business sense continues to be razor-sharp, and he is willing to explore new areas of business with caution and tie up with only those with proven expertise in strategic partnerships.
“These businesses will take time to start contributing to the revenue stream. But, they will support the group’s next level of growth once established,” he says in an exclusive interview with BW Businessworld at his Pune headquarters.
It is the second most important shift in the business outlook for this over 60- year old business group. The Poonawalla family was only into horse racing and breeding until Cyrus Poonawalla ventured into sera extraction and vaccines in 1966. He also made an attempt to assemble sports cars in pursuit of his secret passion for luxury cars, after realising that horse racing had no future as a business in India; but it didn’t take off due its requirement of large amounts of capital.
On the other hand, the vaccine business, made the group go global. It supplies the world’s cheapest vaccines to as many as 170 countries today, prompting the world’s noted healthcare philanthropist and entrepreneur Bill Gates calling Serum Institute ‘an amazing company’.
“This is an amazing company and its work has dramatically lowered the cost of these vaccines. It is a true contribution by India to the well-being of the world,” said Bill Gates when he visited Serum’s Pune facility in 2012.
And, it is Cyrus’ son, Adar, who is now taking the next critical turn after 50 years. “Horse racing was a passion of my parents and I get bored with the cars too,” says Adar Poonawalla sitting at the company’s opulent board room facing the green expanse of his stud farms. It is these breeding centres that have produced as many as 343 Classic winners, including winners of nine Indian Derbies and 68 Indian Classics.
The group is now planning to invest around Rs 3,000 crore in its new ventures over the next few years. This includes a 200-room luxury hotel under the Ritz Carlton brand in Pune, and a 82-room five-star luxury resort in Maldives under the Marriott International’s Bvlgari brand. New ventures also include a series of commercial and residential projects in Pune. The group, which is also developing a Rs 2,000 crore-biotech park in Pune, will be able to unlock the value of its 400-acre land-bank with these ventures.
The Poonawalla family, which recently bought Mumbai’s iconic Lincoln House at Breach Candy for Rs 700 crore from the US government, is also eyeing healthcare, education, clean energy and environment as new verticals. While the group plans to run all these businesses as separate companies, it will not list any of them in near future so the revenue projections for these units are confidential.
Those who have studied the group say the Poonawallas are working on a strategy of combining the commitment to its established vaccine business to ensure stability, while roping in experienced partners to manage the new businesses. This will help avoid initial risks, say these experts.
In the hospitality business, the group has partnered with Pune’s leading real estate developer, Panchshil Realty. According to partner Atul Chordia, chairman of the realty group, Adar, who has recently gotten into real estate, has a sound understanding of the industry dynamics.
“The Poonawalla Group have partnered with us on Business Bay, a mixed-use development comprising office and retail space, and the Ritz Carlton. Since these are long-term assets, we needed a partner who had long-term vision and we found that in this Group,” says Chordia.
It was with a flourish that the Poonawallas made their first outing. Last year they put in a $937-million bid for London’s Grosvenor House Hotel owned by Sahara India Group. This 494-room property, along with two US properties, were put on the block by Sahara. The sell-off was to raise money to bail out Sahara chairman Subrata Roy Sahara, who is in jail facing forgery charges. The bid, however, didn’t go through as Sahara Group withdrew its offer.
The group’s move into diversified areas is also seen by experts as a hedge from the inherent risks of a highly-competitive vaccine business. “Vaccine and biopharma business is a high risk one as its sustainability critically depends on newer technologies and high-cost research and innovation; and the competition too is rising globally,” says a leading industry analyst from Mumbai.
The Poonawalla Group still has its vaccine and biotech business as its core focus. “I am committed to take forward the strong healthcare legacy that my father created over a period of five decades,” says Adar. “This is an established business and ensures cash flow,” he adds.
Serum Institute, which notched a revenue of Rs 3,539 crore, the highest among Indian biotech companies in FY15, posted a growth of more than 100 per cent during 2012-2015. The changed growth strategy has reflected on Serum as well. The company, which never looked at inorganic opportunities in all these years, for the first time made an overseas acquisition in 2012. Serum acquired Holland’s Bilthoven’s Biologicals for €200 million as it offered a lot of synergy and it is expected to pay back soon. It is also looking at marketing partnerships and technology acquisitions for faster growth.
“Our growth at Serum has been almost fully organic so far, as we did not do many acquisitions or rapid expansion requiring big investments,” says Adar Poonawalla.
Serum’s investment decisions have been very cautious. As Cyrus Poonawalla puts it, “Any small or big mistake (in acquisition or big investment) will directly result in losing our own cash as we do not have public money to blow and do not want to create a large debt burden either.”
The slow but steady strategy has yielded results. “A sustained effort to improve our operational efficiency and technology has helped us to keep the costs low, maintain quality, and thereby we captured more markets,” he says. The younger Poonawalla explains that for his group, acquisition targets available in the market have been very few as many of the companies are listed. “We have reservations about acquiring listed companies as that will curtail our independence and flexibility in decision making. This was the reason for not listing Serum too,” he adds.
But, since the young CEO came on board in 2011, things have been slowly changing. Serum has for the first time made a partnership deal — a marketing collaboration with drug maker Cipla — for taking its products to European markets, where Serum did not have significant presence. The vaccine maker, which boasts of protecting the lives of 65 per cent of the world’s infant and child population with its low-cost vaccines including DTP (diphtheria, tetanus, and pertussis), BCG, MMR (measles, mumps and rubella), hepatitis, influenza and rabies vaccines, and a range of anti-seras and biopharma products, is also planning to extend its tie-up with Cipla for the US and a few other markets soon. While risky and high-cost research and development remains critical in the vaccine and bio-pharma business, the company is also opening up for technology buy-outs and in-licensing deals — yet another reform that the young Poonawalla wants to bring in.
Some Flawed Moves
Serum, though a zero-debt company today, has gone wrong on a couple of investment decisions in the past. Its strategic investment in Delhi-based rival, Panacea Biotec, to acquire 15 per cent stake in the company in two tranches in 2008 and in 2013, went sour as Panacea ran into financial trouble. While this investment remains in negative territory even now, the group’s other strategic investment in Chennai-based drug maker Orchid Chemicals and Pharmaceuticals (Serum and its promoters together hold around 11 per cent equity in Orchid from a couple of investments made in 2010 and 2011) turned risky after Orchid came under financial pressure and was forced to sell its core business to US drug maker Hospira.
“The Orchid investment was expected to give high returns through an exit since there were still hopes that its long-time partner Hospira (the US drug maker which bought the injectable business of Orchid in 2009 and remained an outsourcing partner for the Chennai-based company) would buy the whole company. But since Hospira has been acquired by Pfizer now, uncertainties remain in this investment,” Adar Poonawalla said in an interview with the author a year ago.
“While we may remain invested in Panacea for some time to help the company revive, the fate of investment in Orchid still remains uncertain,” he says.
Adar Poonawalla, who has no siblings, is currently the sole heir of the nearly $8 billion Cyrus Poonawalla group. “When I joined the company (Serum) in 2001. I was appointed on the board as executive director. I became chief executive with full control of day-to-day operations five years ago. My father, however, still comes in and we discuss key strategies and important decisions,” says Adar. He says his point of view and style of functioning, although a little different from his father who believed in micro-management and looking into every detail, are more or less in the same line.
But there is a big change in the style of operation. Adar Poonawalla clearly wants to break from the family tradition, tuck away the flamboyance of Ferraris and jets, and bring business back to the fore.
This article was published in BW Businessworld issue dated 'March 21, 2016' with cover story titled 'Budget 2016 Split Verdict'
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