Ranbaxy's New CEO: I Can't Ask for a Better Sign-off

Can Atul Sobti, the newly appointed CEO and managing director, fix the house in order? Sobti, who was earlier with Hero Honda, will have to convince the US Food and Drugs Administration (FDA) of the company’s seriousness to fix any problem, bring some financial discipline to the company and help it ride out the economic slowdown.

Here, Sobti explains his action plan to Forbes India in an exclusive interview.

Perhaps the most challenging task at hand for you is the FDA issue. What are some of the specific steps you are taking to fix it?
It is too complex a case — so, not right for me to talk now. All I can say is we are cooperating. On 18th May, we have shared with them a collective action plan and we hope to meet up with them soon. It is a path known to us. There are no surprises there. It will move to an end-result. It is not easy but it is defined.

While talking to employees, present and former, we sense that there is chaos and some disquiet inside the company on the people front. Constant churn at the top also seems to be an issue. What’s your take?
On the softer side, I have been very sensitive about the HR function. I am very sensitive to the fact that decision must be (taken in a) professional and rational (manner). It is right on top of my priority list. Our people feeling that they are working a professional set-up is important. From that point of view, we have enough to work on and it will be done.

Some people we spoke to who quit recently referred to the “yes-sir culture” that was prevalent in the company where aligning with the top bosses had become a critical factor. Any comment?
The only thing I can say is that what matters is an open and transparent culture. And we will do everything (to make that happen).

Are you looking at any changes in the top leadership team?
Top leadership is critical but to me, I am more interested in softer issues like work-life balance. And I cannot just be mouthing it. You’ve got to make it happen. There has to be a connect between what you say and what you do. You cannot say you have an empowering culture and not be one. Daiichi will be more than happy if we are able to have an open and transparent communication and resolve the FDA issue.

What are the top internal and external challenges that Ranbaxy is facing?
Ranbaxy is going through a big change internally. Fortunately it is split in two parts — ownership change which took place last year and leadership change which is happening now. The bigger change was when Malvinder and Singh family sold out their stakes. The fact, that Malvinder stayed around for a year didn’t make that change feel as dramatic. In India, being a promoter-led company, there are lots of emotions etc. attached. The good part is despite the change, the senior management at Ranbaxy, has accepted the change and have handled it in a very mature manner. This may be because the ownership change had already taken place. Ranbaxy is a large MNC company with the senior management having decent credibility for employees to feel comfortable.

Externally, situation doesn’t change too much. We’ve been part of the team that has taken decisions over the last few years.

What can you tell us about the Daiichi Sankyo-Ranbaxy hybrid business model?
The hybrid model has huge potential. We need a good team. The hybrid business model with Daiichi Sankyo will be accelerated more thoroughly and efficiently going forward. This is one of the strategic areas for Daiichi. Hybrid model is a kind of way of saying that the two companies should tap into their core strength and make the most of it. It is a bit early to spell out the specifics but things will be clearer three months down the road.

But what I can say is that the priority will be the Japanese generic market and the research & discovery work. As a customer, Daiichi-Sankyo is keen to use our R&D facility — partly due to cost and partly due to better productivity and speed to help them in the delivery of global molecules. You will see more productive utilization of our R&D facility.

Beyond cost, Ranbaxy offers a huge benefit area. Japan is a big market for pharma industry but is high-cost. Issues of big pharma vis-à-vis generic too [are] self-evident. Generics have come and eaten away their profits. Daiichi wants to be a part of the generic scene in Japan and Ranbaxy will be a big plus.

In what way do you think Ranbaxy and Daiichi Sankyo are different?
Culturally the two companies are very different — Ranbaxy is a generic global company based out of India but present in over 50 countries and has one of the best manpower and R&D facility. Frankly, I do not know any company in India which would have presence in so many countries. Ranbaxy is also one of the best low-cost manufacturer with good R&D facility. To Daiichi, being global and being institutional is one of their mission statements. Ranbaxy will play a very important role [in that mission].

Any change we can expect because of the recent leadership change?
[The] Japanese are very process-oriented. They have a tremendous respect for teamwork. On compliances and quality, there can be no compromises. And those are the areas that we need to work on. Culturally, those are also not our (country’s) biggest strengths. We will be sharply focussing on these issues.

What kind of opportunities do you see for the company?
We should be No. 1 in India. We are No. 2. There is no reason why we can’t be no 1. There are many parts to it. It will be partly organic and partly inorganic. We just acquired Ochoa Lab and its brands. We also hope to have some of Daiichi products in India soon. There are many such initiatives.

In the recent past, while Ranbaxy’s revenue has remained somewhat flat, debt has increased. Are you concerned?
Twenty-five percent of our business is in the US. And if your top business is sliding, then there are some ramifications on a global basis for the company. Also, if you are down in the US market, you cannot cut cost, can’t lay off people, cut products or shut plants – also because you are confident that you will come out of it soon. So, while your costs stay, revenues dry up. That’s what has impacted us in the last 12 months. We would have weathered well if not impacted by the forex — I haven’t seen such a phenomenal swing in forex in my entire career. With 80 percent of our revenue coming from exports the impact was hard. Second half of 2008 is a period a lot of us would like to forget. ‘Should we have leveraged ourselves (that much)’ – that’s very debatable in hindsight. Also, post election rupee is moving in the other direction and hopefully we will reverse some of our forex losses.

Debt was a concern area. We have had infusion of funds post the Daiichi deal. Today we are decent on debt.

How are you settling down - from an auto company to now in the complex pharma world?
I have always loved challenges. Sometimes, you bite more than you can chew. And this has been a phenomenal challenge. Even without the FDA mess [and] forex losses, pharma is a complex and difficult business. So it cannot get more exciting and challenging from here. I am 55. If I have to have a sign-off, it cannot be better than this. Professionally, you do the best you can.