While the deadline to comply with Schedule M guidelines is just seven months away, the small-scale units in the country are contemplating the idea of mergers and acquisitions as a resort to modernize and escape from downing the shutters forever.
Many of the SSI units in South India, which are still unable to find much headway in modernization due to lack of own funds, inability to mobilize bank loans, liabilities, unfavorable market conditions, etc have already initiated the process in this regard, it is learnt.
Though the move is at present confined to a few Tamil Nadu Pharmaceutical Manufacturers Association (TNPMA) members having a good understanding of each other, the Confederation of Indian Pharmaceutical Industries (CIPI), the umbrella organisation of SSI units in the country, is planning to take up the idea on a national scale. CIPI is likely to soon organize a seminar for its members to explore ways of complying with Schedule M deadline and the merger idea is likely to be a major component of the deliberations.
According to T.S. Jaishankar, chairman of CIPI, the objective of mergers is to leverage the strengths of units which are unable to mobilize the required funds for modernization. "One unit may have a strong tableting section, but his packaging facilities may not be good. If he has a good friend having better packaging facilities and a weak tableting division, and both are in the same line of manufacturing, then it is not a bad idea to merge or acquire, provided both the entrepreneurs have good understanding between them. The move will surely bring better results for them in the long run. It could be some sort of a contract agreement rather than defining it as a takeover or merger as in the case of larger firms," says Jaishankar.
He said the financial and technical consultants appointed by CIPI would assist the units in identifying possible partners and to guide them on acquisitions and mergers. The financial consultant would offer a viable and practical package after evaluating the strengths of the firms, financial liabilities and terms of the agreement. Similarly, the technical consultant could advice them on technical strengths, shortages, and ways to overcome them. If the firms agree on the packages, a MoU could be signed for mutual co-operation. CIPI has already short listed four consultants in the South, and was likely to be appointed this month, said Jaishankar.
He said the SSI leaders were still negotiating with the banks, mainly SIDBI, for liberalized loans. Since the bank officials have made it clear that it was impossible to further decrease the interest rates, the SSIs were trying to get a moratorium for repaying of the loans and subsidies for modernization process, said Jaishankar.
Currently SIDBI offers the Credit Linked Capital Subsidy Scheme (CLCSS), which has 12 per cent capital subsidy for induction of proven technologies with 20 percent promoter's contribution. The Technology Development and Modernization Fund (TDMF) scheme of SIDBI is at an interest rate of 9.5 to 11.5 per cent, with a stipulation that units should be in operation for more than three years with a good track record.