The model also meant that it allowed Balaxi to save on capital costs and instead train its eyes on customer needs. This strategy strengthened the company’s asset-light model which enabled it to be capital-efficient at the same time focussing on intellectual property, revenue growth and brand amplification.

“As soon as we identified the potential of a drug for a market, we built our supply chain with reputable manufacturers to ensure high quality and dependability of our products. Over the years, this approach has been one of our key pillars on which we have expanded Balaxi,” says Paridhi Maheshwari, Head – Alternate channels, Balaxi.

Healthy expansion

After Angola, Balaxi set its sights on more growth markets. The firm did not just randomly enter any new market, but has always focussed on markets which were difficult to enter, with language and cultural barriers. This meant that there were very few global suppliers with an established presence in these markets.

Besides, a low competitive intensity in its local firms means that it has the potential to establish itself among the top 2 players in its chosen geographies. On the other hand, the countries need to have a high-potential economic growth with rising per capita income which also means that healthcare spends have the potential to expand exponentially. 

“Our strategy is unique. We look at small countries where there are not many pharma players with a fragmented market that allows us to consolidate our presence and grow. We chose our markets focusing on the GDP and per capita income. Countries that have a high per capita income and high cultural barriers creates a good marketplace for us that boosts our ability to grow at a faster pace,” says Pranav Maheshwari, senior VP – business development at Balaxi. 

In the last five years, Balaxi has made its entry into new markets starting from the Dominican Republic where it opened a central distribution warehouse. At the same time, the firm applied for product distribution licences by submitting product dossiers for security product registrations. W

hen the foray started to gradually build up, Balaxi entered its third geography, Guatemala in the Latin American market. In its three key markets, the firm has established a strong competitive positioning, received product registrations, and has developed key infrastructure in terms of stock-and-sell infrastructure as well as establishing of brand recognition. 

A key to growing in some of these markets is acquiring product registrations. In the last 15 years, Balaxi has developed a portfolio comprising 649 pharmaceutical product registrations in over 30 therapeutic segments. Some of Balaxi’s therapeutic segments include antibiotics, analgesics, anti-malarial, hypertension medication, diuretics, antacids, laxatives, anti-asthma drugs, and several others.

Antibiotics comprise about 31 per cent of its pharma product mix in FY22, while analgesic and antimalarial products comprise 20 and 8 per cent respectively. The rest comes from several other therapies. 

Over the years, Balaxi has established a strong presence in Angola, the Dominican Republic and Guatemala. Angola contributes about 59 per cent of the company’s sales, while the Dominican Republic and Guatemala contribute 28 per cent and 13 per cent respectively. Balaxi has also developed several brands in key markets.

Branded products constitute about 30 per cent of the product mix, while generics account for the remaining 70 per cent. Balaxi sells all kinds of pharmaceutical dosage forms, which include tablets, injectables, liquids as well as capsules with injectables (which account for 46 per cent of its sales). Besides, Balaxi has also leveraged its presence in these key markets and is present in the ancillary business and building branded consumer products that complement its pharma business. 

New growth frontiers

While Angola and existing businesses continue to be the cash cow, Balaxi has set its sights higher.  Balaxi has been looking at expanding its presence in key African and sub-Saharan markets such as Zambia and the Central African Republic. On the Latin American front, Balaxi has initiated expansion forays in markets such as El Salvador, Nicaragua, Ecuador and Chile. 

“Our frontier market strategy demonstrated its success as a unique and profitable business model and we are replicating it across geographies. Our strategy is to organically grow our existing markets and consistently seed new markets for our growth. We have drawn up plans to grow in high-potential countries in Latin America over the next few years,” says Maheshwari. 

The prospects in the LATAM markets are especially tantalising for the likes of Balaxi. The LATAM pharmaceutical drug delivery market was valued at $62.2 billion in CY2020 and is projected to reach $160.5 billion by CY2030 as per a Magma Information Centre research report. The growth is set to be at around 9.97 per cent CAGR from CY2021 to CY2030.

The oral drug delivery market is expected to reach about $49.5 billion by CY2030 from $23.2 billion. Besides, the generic drug market is also expected to reach a value of $50.6 billion in CY2030 from $37.1 billion. The LATAM over-the-counter drugs market is growing significantly and is set to post a robust CAGR of 8.64 per cent to $17.3 billion as per projections from Market Data Forecast. 

To tap this growing demand, Balaxi has already submitted over 625 technical dossiers of pharmaceutical products for product registration for future filings in both existing and new markets. Most of these product registrations have been in regions such as Guatemala, El Salvador and Honduras.

As and when the registrations come through, Balaxi should be able to further strengthen its position in the LATAM market. These new markets will prove to be big growth drivers in FY23 and FY24 as it aims to more than double its project registrations. 

“Going by the way these markets are growing, Balaxi is on a sound footing. If the registrations come quickly as planned, it will boost the revenues of the company significantly in the next three years. The other factor at play will be the economies of scale that will drive a margin expansion”, says Sandeep Ghate, MD of Securex. 

 Asset right

But Balaxi is not just relying on new markets and registrations for growth. After years of pursuing an asset-light model with a focus on outsourcing its product requirements, Balaxi is taking its first steps to becoming an integrated pharmaceutical player.

“Our asset-light strategy enabled us to enter new markets quickly, scale up our business, without the need for investing in capital expenditures. We now see a good potential of becoming an integrated player manufacturing niche and value-added formulations for highly regulated and advanced markets,” says Maheshwari.

The firm is establishing an EU-GMP certified manufacturing facility in the next 2 years. Balaxi has already acquired land in a pharma SEZ located at Jadcherla, Hyderabad. It has earmarked Rs85 crore for the new plant which will be part financed from internal accruals as well as a judicious mix of additional capital. The project is expected to be completed by June 2024 and the plant will manufacture general oral solids and liquid injection formulations.

In the initial years, the plant will produce niche branded products for its existing markets, which will lend a better controlling hand on product quality. This will enable the firm to use its upcoming asset to fulfil short-term demand requirements, while it prepares to get the EU GMP certification. It’s a strategy that will enable a smooth transition from semi-regulated markets to advanced markets.

“We are making a transition from a model that focused on frontier markets to one that also participates in advanced markets. Hence, we are moving from an asset-light model to an asset-right model. Once the plant is up, the facility will make some value-added products that are readily in demand in our existing markets. We see a strong payback apart from several strategic benefits for the business from this investment. We will be also able to decide which products we can outsource to other GMP manufacturers, thus giving us a better handle on quality,” continues Maheshwari. 

With a strong business model and growth tailwinds arising due to the Covid-19 pandemic, Balaxi has been able to post a steady increase in growth in FY22. Revenues saw a jump of 20.8 per cent to Rs279 crore. Due to cost efficiencies and economies of scale, earnings before interest, tax depreciation and amortisation (EBITDA) posted a 23.6 per cent jump in the last year increasing to Rs55 crore.

Balaxi’s stock-and-sell model and brand reputation enabled it to pass on raised prices to customers, increasing its operating profitability. As a result, its profitability increased 25 per cent to Rs47.7 crore in FY22. 

The company’s first quarter FY23 numbers were even better. The firm expanded its revenues by 42 per cent to R82.8 crore, while net profits increased 32 per cent. Balaxi’s robust business model enables it to deliver effective products for its markets, thus generating attractive returns for shareholders.

“The firm enjoys a healthy operating profit margin of 19.57 per cent which is better than some of the comparable peers. With a return on net worth of 42.11 per cent for FY22, the firm so far delivered tremendous value for its shareholders,” says Amol Mantri, CFO at Balaxi. 

Needless to say, Balaxi’s investors are a happy lot. Ever since the company declared its Q1 results, the stock has been on a tear, gaining nearly 48 per cent in a month. With the company investing in new markets and doubling its registrations in its existing markets, growth from here on is more or less assured. For shareholders, that means there is still time for the Goldilocks scenario to unfold.