On paper, the rupee’s depreciation is a good thing for export-oriented pharmaceutical companies that can get more for the dollars they earn. However, for an industry that relies heavily on imported ingredients to serve the domestic market, the import numbers may offset the export gains.
Pharma firms often import ingredients, and after adding value, sells them in export markets.
“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 a senior official from Dr Reddy’s Laboratories seeking anonymity.
Many pharma companies import ingredients from China. Moreover, the prices of many other products such as solvents are linked to the prices of crude oil. So what they earn from net exports plays a hedge against the import of these goods.
The Indian pharma industry sells goods worth Rs 100,000 crore of which 40% constitute exports. The remaining 60% depends on imported ingredients.
“This volatility takes most pharma exporters by surprise since they would have covered their exposures (during export) to some extent only and that hedge might not result in gains,” said Ramesh Swaminathan, president, finance, Lupin.
“There are other issues such as capex, foreign funding etc related to rupee. Hence even a sustained depreciation is not a unidirectional boon for pharma industry,” said Ranjit Shahani, managing director, Novartis India and president, Organisation of Pharmaceutical Producers.