Even though the depreciating rupee augurs well for pharma-biotech companies in the country, the global slow down in the economic growth arising out of the spiraling crude oil prices is posing serious challenges to the biotech sector for survival.
Industry per se is facing a tough time, stated Kiran Mazumdar-Shaw, chairman and managing director, Biocon Limited.
The crisis is also critical for the biotech sector which cannot be isolated from other sectors. The sector is also in a tight spot as it is also a part of the mainstream economy. With biotechnology industry valued at Rs 8,400 crore in March 2007, there is huge challenge for companies in the wake of the economic slow down resulting out of high oil prices and weak global demand, she added.
It is hard for companies to increase prices and even generate its margins. Companies which were looking at other markets because of the dollar value are now finding it difficult to survive because in an economic slow down, the dollar has weakened against most currencies, and not just the rupee, pointed out Shaw.
Depreciation of rupee would help only a bit on exports as most of the raw materials are being imported hence in the domestic market, the expenses would go high. Rising crude oil prices will definitely have an indirect impact on pharma as power cost and transportation will increase thus impacting the raw material prices. Also marketing and distribution expenses would increase for domestic marketing.
Inflationary trends will be higher. Most of chemical products are petrochemicals derivatives and rise in crude oil price will result in shooting up of \intermediates and solvents. Adding to all this, the forthcoming Olympics in China has seen 30-40 per cent increase in all major bulk actives in the past 3-4 months and will continue for some more time, informed Shailesh Siroya, managing director, Bal Pharma Limited.
But herbal industry will get benefited from the exports. Global slowdown will not impact much as pharma is an evergreen industry and with changing lifestyle and health awareness, consumption of medicine will continue to rise high, added Siroya.
According to Kaushik Desai, COO, Global Pharmatech Pvt. Ltd. and member, Indian Pharmaceutical Association, the present scene will have a detrimental impact on the turnover of the company. It will definitely drag down revenues to a considerable extend. The pharma industry in India, which is valued at Rs 45,000 crore has 40 per cent of its earnings coming in from exports alone. Although the depreciating rupee could help, the bigger concern is the overall economic slow down.
The impact will also be felt on the contract manufacturers as the input cost goes up which is driven by the soaring crude oil prices. Around 40 per cent of the contract manufacturing business is in Karnataka where small and medium sized enterprises will be hit and become victims again. There are extensive negotiations but customers are unwilling to relent in increasing the prices in contract manufacturing, added the COO of Global Pharmatec.
Pharma sector will have more to gain from a depreciating currency and less to lose from an appreciation of currency. According to N Jatish Seth, the depreciating rupee is a positive scene but its benefits will not be there because of the high crude oil price which is going to have a negative blow. A few months ago, with the appreciation of the rupee we could expect a monetary correction but when crude prices surge it is a serious blow and the impact percolates across all functions in drug production.