Highly volatile rupee turns minefield for pharma firms
The rupee's depreciation is on paper a good thing for the export-oriented pharmaceutical firms that can get more for the dollars they earn, but the industry as a whole is worried because the volatility in the currency is a bigger concern for drug manufacturers who can get their import numbers wrong.business Updated: May 25, 2012 01:43 IST
The rupee's depreciation is on paper a good thing for the export-oriented pharmaceutical firms that can get more for the dollars they earn, but the industry as a whole is worried because the volatility in the currency is a bigger concern for drug manufacturers who can get their import numbers wrong.
Pharma companies often import some ingredients, add value to them, and then sell them in export markets. They also rely heavily on imported ingredients to serve the domestic market.
"The randomness of the rupee is affecting our export and import bets, as many times when we go to import, the rupee is on a high and while selling the product it falls to the lowest" said Umang Vohra, chief financial officer, Dr Reddy's Laboratories."Many companies including us, import intermediates from China," said Vohra. "The prices of many other products like solvents are linked to crude prices. But what we earn from net exports plays a hedge against the import of these goods."
The Indian pharmaceutical industry now sells goods worth Rs. 100,000 crore of which 40% constitute exports. The remaining 60% depends on intermediates, solvents and finished formulations that are imported.
"Exporting companies will gain significantly, while the companies that import for finished or bulk drugs are seeing their margins significantly squeezed," said Ranjit Shahani, vice-chairman, Novartis India.
Industry officials say the significant exchange rate volatility also brings out the inflexibilities of cost-based pricing policies as it is extremely difficult to get the strong currency depreciation reflected in prices controlled by the National Pharmaceutical Pricing Authority (NPPA).
"In last six months, volatility has depreciated the value of our currency by 20%, breeding windfall gains and losses," said DG Shah, secretary-general, Indian Pharmaceutical Alliance, an industry association. "The healthy volatility level for pharmaceutical players should not cross 5% (up and down). A fall beyond this level would upset the business plans of various global players."