A weak dollar and a strong rupee has taken a toll on the performance of the Indian pharmaceutical sector during the last couple of years. Pharma industry in the country is thus contemplating on re-devising a strategy to offset such losses.
According to the Federation of Indian Export Organization (FIEO), a strong rupee for some period of time led to exporters to expand in the non US markets and increase their business receipts in currencies like Euro and Yen, besides focusing on domestic market operations.
Now with the Euro and Sterling Pound on a depreciating mode, the industry strategy includes careful assessment of currencies, monitor pricing every quarter and include the currency fluctuation blows into product costing, said Kaushik Desai, chairman, Industrial Pharmacy Division, Indian Pharmaceutical Association and CEO, Global Pharmatech
There is definitely a great deal of impact on INR realization. Market to Market (MTM) impact is severe only in case of derivative structures. However, plain vanilla forwards are less impacted by MTM accounting. Strategy to hedge through simple vanilla forwards after computing net exposure will help. One can also look at maximizing natural hedging by discounting and credit period, said T S Rangan, CFO, Strides Arcolab.
Pricewaterhouse Coopers Macro Economic Consulting Group Report identifies the E7: Brazil, China, India, Indonesia, Mexico, Russia and Turkey as markets of the future.
Indian companies have already made a presence in E7 nations but will need to further maximize opportunities, stated analysts.
Rupee rally is a serious impediment to growth as export margins are badly hit especially that of SMEs, Jatish N Seth, secretary, Karnataka Drugs and Pharmaceutical Manufacturers Association (KDPMA) and director Srushti Pharma.
A continuous depreciation of US dollar and Euro is a serious setback for pharma exporters in India. The central government unlike China has been lackadaisical towards exporters, said Archana Dubey Mitra, associate vice president, Bal Pharma Limited.
Strides Arcolab has exposure in multiple currencies including USD, AUD, GBP, Euro and SGD. Negative impact of one currency is offset by gain / appreciation in another currency. “We have significant portion of business in Australian dollars where INR has strengthened against AUD, the negative impact of USD –INR volatility has been offset to a large extent on a consolidated performance,” said Rangan.
Strong Rupee against US dollar affects exports and imports from India are expensive in US dollar terms. However, it affects exports in the short term but the long term trend is that India will be a hub for global pharma because of cost competitiveness coupled with technical competencies. CRAMS business will not be seriously affected because of long term nature of most contracts, said Albert Da Costa, associate director, Equirus Capital.
Indian government should take a clue from China. Our government support is disappointing. Case in point is the special incentive scheme announced for status holders with 1% duty credit for few sectors including chemicals but excluding pharma industry, said Dubey.
Efforts to offset impact include maximization of natural hedging through simple techniques like discounting, credit period, reset clause in customer contracts in case of major movement in currency. Hedging through simple forward cover based on net exposure is recommended. Strides is the first company in India to fully implement fair value accounting (AS 30 to AS 32) to offset impact of reinstatement in the P&L account, said Rangan.
Rupee will strengthen in the near term due to Indian economy’s performance and increased FDI inflows. However, to offset the impact would be to move from a pure generics play to a vertically integrated model and offer end-to-end services across development and manufacturing of formulations and API’s. India needs to also improve its IP perception, so that global majors increasingly partner with firms here on newer technologies like biologics, NDDS, etc, pointed D’ Costa.