Falling Euro and appreciating rupee are causing serious concerns for the Indian pharma exporters and companies which have established units in the European Union (EU). The sharp depreciation of the EU currency has made Indian drugs less competitive in the EU markets resulting in a major dip in exports which will have a detrimental impact on the operating profits of companies.

In the long run the European debt crisis is bound to have adverse effect on pharma exports. In such a scenario, Indian companies should immediately look at options to lower the risk. The dual mechanisms of factoring and hedging could act as the cushion against the volatility of the currency fluctuation, Abhijeet A Biswas, director, Energy & Industry, FMCG and Healthcare, Equirus Capital told Pharmabiz.

The crisis is expected to deepen and would result in European companies going bankrupt. Therefore, in order to minimize the losses, the only way forward is to judiciously adopt either of the two strategies. Indian pharma will have to engage in receivable factoring. The key benefit is that companies will get immediate cash with no waiting and without incurring new debt. This fast payment preference with invoicing is the key to efficient handling of finances. Pharma companies will need to hedge anywhere between 25 to 30 per cent of the Indian currency value, said Biswas.

Equirus Capital Pvt Ltd is a global investment bank offering advisory services in the areas of Mergers and Acquisition, Private Equity, Merchant Banking and Structured financing for leading international and domestic investors.

From an Equirus Capital perspective, Euro has been the global currency for the last 11 years and its strength is symbolic to the European Union. The region is dominated by two set of countries. One is the stable economies of the UK, Germany and France. The other is the debt ridden Greece, Italy, Spain and Ireland to name a few. Although there has been a bail out package to the tune of Rs 44 trillion (Euro 750 billion or US$ 1 trillion ), these countries are dragging down the countries which are managing debt well. There are efforts to protect the Euro from nose diving and saving its future value. However for the future there is no free lunch for any country. The EU strategy is to create a favourable fiscal environ and help move from ‘deficit ridden-to-surplus’ situation.

Timely intervention by the EU Commission is the need of the hour because these financial failures are leading to political ramifications. However no time frame can be projected on the recovery of the EU currency. The Euro zone crisis need to create its path to strengthen its value and this could take six months to reverse the situation, said Biswas.