After setting trends in many areas and strengthening base in the domestic arena, the North Indian pharma industry led by the biggies, are now on a drive to consolidate ground in the global market, showing yet another direction for the Indian industry to follow.
However victories of the biggies, their efforts to reach out to more markets across the globe, and the unending pains of the small scale sector are at present overshadowed by one factor – the uncertainty over the extension of tax holidays to the industry belts Uttarakhand and Himachal Pradesh. Because, it can yet again reshape the future of the North Indian pharma industry, as it did a few years ago.
Also, the friction between those in the excise-free zones and outside the zones has reached a flashpoint as countdown had started for the expiry of the excise sops. But, as a whole the gap between the majors and small players, as in the case of those in the free zones and others, is widening and emerging as the main feature north Indian sector.
As the excise-free status to the hilly states of Himachal Pradesh and Uttaranchanl, which have emerged as top destinations of the country because of the sops over the years, expires by the end of this month, the future of North Indian pharma sector largely depends on the next step by the Centre. Both sides overwhelmed by anxiety and uncertainty are in their last ditch effort of lobbying on the subject. On the one hand while Himachal Government and the pharma industry led by FOPE are making efforts for the extension of sops, on the other ,associations outside the zones are pressing the government to end disparity.
Excise-free zones
The landscape of north Indian pharma industry was redrawn drastically after the Vajpayee-led Government extended tax holiday to these hilly states. And the same landscape is set to be redrawn again, depending on what the present Government will be deciding over the matter. Hence, anxiety can be the overlapping sense of feeling of the industry in north, above all its gains and pains over the past year even as the clash of interests has reached a flash point.
SME Pharma Industries Confederation (SPIC), representing mainly the small and medium players outside the excise free zones, has been on an agitation for a level-playing field. Taking the course of fight to a higher level, the associations in Haryana have asked the state to pass a resolution to urge the Centre not to extend the excise package. Punjab, which was badly hit by the exodus of pharma units to the tax-free havens, has already moved the Supreme Court praying for extension of the scheme to the state.
In a letter to Haryana Chief Minister Bhupinder Singh Hooda, all the ministers, leader of opposition and all the MLAs in the state, the association representing mostly SSIs, said that if the unanimous appeal of Haryana Assembly is not heeded by the central government, the Haryana government should retaliate by slapping a special punitive entry tax of 10 per cent on all goods being sent into Haryana by excise free units of these states.
While telling the central government to levy central excise on contract manufacturing in excise free zones so that thousands of traders and doctors who are sourcing medicines with high MRP from these states are checked and the government gets some revenue, the association said that if the government finally decides to give extension of tax exemption to these hilly states, the same facility should be extended to Haryana also as was demanded by Punjab government for itself.
The Punjab government has already moved Supreme Court praying to extend the tax holiday schemes to Punjab as the state has witnessed a mass exodus of industries to the neighbouring states to take advantage of the tax benefits which resulted in draining of the state exchequer during the last few years.
Punjab is one of the worst affected states by the tax holiday schemes as a large number of industrial units shifted base to the neighbouring Himachal Pradesh where 10-year-tax holiday had been given to these units. The position of the state in the industry graph has slipped sharply to 15th position from the second position at one time. Gujarat was at number one position in the chart. Pharmaceutical industry, especially the small and medium scale sector has been one of the most affected segments due to the mass exodus of manufacturers
At the same time the industry associations in Himachal and Uttarakhand are not leaving any stones unturned in their efforts to get the scheme extended. There are reports that their claim is being supported by the Commerce Minister Anand Sharma, who hails from Himachal. He has already written to Prime Minister Dr Manmohan Singh for extending the excise holiday of the hilly states by at least for three years, that is up to 2013.
HP Assembly had already passed a unanimous resolution in the last-winter session urging the central government to extend the excise holiday by 10 years, that is up to 2020. Thus the future of the industry in North India is poised to be determined by the decision of the Central Government, according to the observers.
Haridwar, Roorkee, Dehradun and Rudrapur are the main hubs of pharmaceutical firms in Uttarakhand having around 200 units while Baddi and some other pockets in Himachal has over 300 units. Alembic, Dr. Reddy Lab, Alkem, Mankind, Torrent, Lupin, Cadila, Indswift Lab, Unichem, Morepen, Klitch, Ranbaxy, Nector, Surya, Cachet, Indchemie, Galpha are some of the major companies who have set up their units.
SME sector
The perils of the SME sector continued unabated the past year also, with nothing concrete as assistance or financial schemes coming their way. Except for the biggies from the region and those in the excise free zones, the pharma industry in the North has already lost its sheen.
According to official statistics, out of the total 10,000 plus manufacturers, Maharashtra is home to as many as 3139 formulation and bulk drug units, Delhi can boast of just 540 units. Delhi has been one of the pioneering spots for the Indian pharma industry to take roots in the early days and during its peak time, the national capital region including Noida, Gurgaon, Ghaziabad and Faridabad had over 2000 units according to industry leaders.
In 1970 and 80s, Delhi and outskirts were leading hubs for the pharmaceutical industry, mostly led by small scale and medium players. Then slowly biggies emerged and captured the grounds while some existing units diversified. Though the inland container depots helped the small players also to grow for some time, struggle continued for them as big players captured the markets fast. Even in the small scale sector, formulation segment have come up better while the bulk drug manufacturing is to reach the potential, opine industry leaders.
The story of the SME sector is the same over the years. Schedule M compulsions, less friendly pollution norms, less sops from the government and competition from the biggies have been slowly pushing the small players out of the horizon in the past.
``If thousands of small units either shut down their operations or facing the closure across the country, there only a handful left outside the excise free zones in the North India to fight for existence now. Almost 75 per cent of the small scale units have moved to comparatively safer havens of excise free zones now. And there are not much SSI units left now. There were at least 300 units in Haryana but now only 50-60 are left. In Delhi, there could be just 30-40 working now. So is the case with Punjab where once there were 500 units and now hardly 50 remaining. Majority of them moved to free zones while others faced the logical end of their struggle—premature death,’’ says SPIC senior vice-chairman Lalit Kumar Jain.
Big players
The biggies in the region led by Ranbaxy, as in the past, have not just strengthened the ground as in the past, but also set another trend for the country. As the Indian industry is expected to witness a spurt in mergers and acquisitions in the next few years, the north Indian biggies are gearing up to consolidate their base in overseas markets now
Ranbaxy has consolidated the financial performance during the year 2009. According to its CEO and Managing Director Atul Sobti , after the announcement of the results, “ Good revenue growth in most key geographies, launch of two First-to-File (FTFs) in USA and continued cost containment, has ensured consistent quarter-on-quarter improvement in performance. The company ended the year with strong business and financial performance, and over achieved on the guidance given for the year.”
Daiichi Sankyo Company Ltd, the parent company and Ranbaxy, have recently decided to float Daiichi Sankyo Espha Co., Ltd. (“Daiichi Sankyo Espha”) on April 1, 2010 to market generic drugs, as well as Daiichi Sankyo’s products which are well-established in the market. Completing their strategic alliance in November 2008 to form the unique Hybrid Business Model, Daiichi Sankyo and Ranbaxy (collectively “the Group”) have been moving forward to fully leverage the model. The expanded global reach enables leading market positions in both developed and emerging markets through the supply of innovative and established pharmaceuticals. The group has also announced the specific plans for Mexico as a part of this model.
Jubilant Organosys Ltd, another leader in the regions, also improved upon its performance over the year. Its profit after tax rose by 215 per cent in the last quarter. In line with its plan to strengthen the base overseas, the company is setting up Niacinamide and 3-Cyanopyridine plant of 10,000 TPA each, expected to be ready by end of 2010.
Jubilant is currently ranked amongst the top three manufacturers of Niacin & Niacinamide (Vitamin B3) worldwide and is the only manufacturer of Niacinamide with complete backward integration to the basic feed-stock. Jubilant is also the largest producer of Beta Picoline globally, a critical raw material for the manufacture of Vitamin B3. “ We believe with our new capacity we will be able to strengthen our relationship with the existing wide spread customers globally as well as develop new markets,” according to company CEO (advance intermediates and vitamins) Pramod Yadav.
Other major pharmaceutical units in the region are Panacea Biotec, Venus Remedies, Ind-Swift, Ind-Swift Laboratories, Surya Pharma, Dabur Pharma, Nectar Lifesciences, IOL Chemicals and Pharma and Mankind Pharma. Side by side further strengthening the presence in the domestic markets, all the major companies are focussing more on exports these days. The north Indian leaders have showed the way for the rest of the country in this direction.