Indian pharma sector appears optimistic on its growth prospects during this phase when the second dip economic depression deepens in the US and the  financial turmoil  in the European Union,   according to the industry heads  and market analysts.

“It was the  2008 meltdown which severely affected the pharma industry which includes  active pharma ingredients (APIs) and Contract Research and Manufacturing Services (CRAMS). But this  downturn of 2010-2011 has not dampened the sentiments  of the sector, opined analysts.

“The industry leapt back from a desolate mood to one of positive outlook going by the Q1 and Q2 results of pharma majors. This shows that Indian companies especially the ones  in the CRAMS space are taking stock of the situation and armed with the right strategic moves to  achieve growth,” stated V N Saravanan, assistant vice president – research,  Unifi Capital Pvt. Ltd.

Although the economic crisis in 2008 was unexpected and took the pharma industry by surprise, the second signs of a pressure and disintegration of developed economies of EU, US and Japan were anticipated early,  allowing companies to manage the crisis with prudence.    The industry has garnered considerable business traction in terms of new contracts being inked and renewal of orders  to boost growth. Some of these include  Divis Labs, sanofi aventis, Orchid Chemicals, Biocon, Strides Arcolab and Jubilant.

“While the mood is upbeat to bag orders from the US, business generation from the EU is tough. There is cost cutting, reluctance to renew contracts driven by regulatory intervention to revamp prices making it difficult for many  Indian companies”, added Saravanan.

 According to Kiran Mazumdar-Shaw, chairman and managing director, Biocon Limited, although, there is a concern over the current global economic scenario, so far we have grown and so has the industry. In the case of Biocon, it has outperformed the market expectations. However the next few quarters will provide us a clear indication on the impact of the slowdown.  

Generally speaking bio-pharma and healthcare sectors are immune to such risks. Therefore in a business drooping phase where the West has resorted to curtail expenses in outsourcing and companies facing a funding crunch,  Indian pharma and biotech industry can build different  models to capitalize opportunities during the  slowdown, stated industry heads.

Commenting on the scene in India, the rising  inflation and  interest rates will not affect the pharma sector. Instead the  new  drug  price control regulation which is on the  cards would see market leaders under pressure but would be favourable for  others.

Coming to the rupee depreciation, the impact is short-term on net receivables. Companies  will need to hedge only  after a couple of quarters to lock their export revenue at attractive rates. Another point is that, in this sector,  dollar loans are more pre-dominant with External Commercial Borrowings (ECB)  being sought to meet  capex, acquisitions and build capacity.  But  in the long-term for every exposure to dollar,  companies  could be affected   for  rupee  repayments. However, there could be MTM losses for companies having short working credits and term loans with rupee depreciating  by 10 per cent QoQ against the US dollar. Further, interest rates  during the quarter could also see a sharp rise, said the  research- VP,  Unifi Capital.