The rupee’s depreciation is good news for India’s export-oriented pharmaceutical firms that are getting more in rupee terms for every dollar they earn. “For every one rupee slide against the dollar, pharma companies gain 4%,” said Sarabjit Nangra, vice-president, research (pharma), Angel Broking.
But the rupee, which has fallen 15% since May, has led to both windfall gains and losses. Experts said investors generally avoid markets where currency volatility (rise and fall) crosses the 5% threshold as “too risky”.
The Indian pharmaceutical industry is moving towards specialty generic drugs. “With the fall in the rupee and the shift towards specialty products, price realisations will become better,” said DG Shah, secretary general, Indian Pharmaceutical Alliance (IPA), an industry body.
US President Barrack Obama’s healthcare plan, dubbed Obamacare by the media, which aims to bring affordable medical treatment within reach of all Americans, is also expected to provide a huge boost to Indian pharma companies, said Nangra.
“We remain confident that stocks that the pharma sector will continue to post 20%-plus earnings growth,” said Arvind Bothra, analyst Religare Institutional Research.
But despite its success in generics, the Indian pharma industry has suffered an image crisis in recent years. Consider this: a Pew survey in 2010 found that 50% of Americans distrusted Indian drugs (70% didn’t trust Chinese drugs).
“The increasing number of US FDA audits also makes the market less lucrative (because of the resultant fines and image crisis) even if the decline in the value of the rupee makes exports cheaper. We need a robust mechanism to make sure these fallacies do not recur. But if they do, we must find ways to deal with them,” said Hitesh Sharma, national leader, life sciences, Ernst & Young.
Drug makers are trying to achieve a balance between hedge and exposures by adopting a calibrated approach. “We are trying to ring-fence ourselves from this volatility,” said Ramesh Swaminathan, president, finance and planning, Lupin.
“Even a sustained depreciation is not a unidirectional boon for the pharma industry,” said Ranjit Shahani, managing director, Novartis India and former president, Organisation of Pharmaceutical Producers, a multinational pharma lobby.
“I am positive on the sector,” said Nangra. She has a buy call on Cadila Healthcare (closed at Rs. 677 on Monday), Cipla (closed at Rs. 439) and Aurobindo Pharma (ended Monday at Rs. 208). Sun Pharma (Rs. 603), Lupin (Rs. 893) and Dr Reddy’s Laboratories (Rs. 2,384) may also rise.