September 08, 2007

DRL eyes health insurance, organised pharma retail

DR Reddy’s Laboratories (DRL) is eyeing an entry into health insurance and pharma retail as part of its ambitious plan to diversify in the health business. The growing business opportunities in both these segments could be the trigger.

“We have taken note of recent developments in health insurance where hospitals are tying up with foreign insurance companies for joint ventures as well as organised retail. Our board is still looking at ways to respond to these developments, though the deliberations are still at the preliminary stage,” Dr Reddy’s vice-chairman GV Prasad told ET. Last month, the Apollo Hospital Group and Europe’s largest private insurer DKV joined hands to start a standalone health insurance company, the second one in India. But this is the first ever insurance venture of a hospital group in the country.

The minimum paid-up capital requirement for companies entering insurance is Rs 100 crore. The existing regulations allow only up to 26% FDI in the insurance sector. This means DRL may have to look for a foreign insurance partner if it does not want to chip in the entire Rs 100 crore.

At present, there are 15 general insurers offering traditional health insurance policies. But new players are keen on entering the health segment, considering that less than 3% of the country’s population is covered by health insurance. Analysts tracking DRL, however, seem sceptical on the core pharmaceutical maker’s possible entry in new areas of business. “If DRL does want to enter organised retail, it needs to make huge investments to set up chains and employ trained pharmacists. The company may have to raise extra capital to fund a retail venture. So is the case for an insurance venture,” said a senior industry analyst.

Some other analysts, however, maintain that Dr Reddy’s possible entry into the $5-billion Indian retail space is logical from a branding perspective and the company can leverage on its nationwide distribution chain to drive sales.
A host of players are already operating in the market, including Subhiksha, Apollo Pharmacies, Med Plus and 98.4 degrees. In fact, Med Plus is also looking at starting a manufacturing unit to develop it own brand of pharmaceuticals that will be sold through its outlets.

As of now, DRL is pushing its rural sales hard. The rural market contributed to a whopping one-fifth of its total sales in India and the market continues to grow at a rapid rate. “Now, there is no distinction on drug consumption patterns between rural and urban areas. For instance, our heart disease-related drugs sell rather well in rural areas, as cardiac (heart-related) diseases are no more rampant only in cities,” said GV Prasad.

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