Small scale pharmaceutical companies in Gujarat fail to rake in the moolah through higher export sales realisation as the rupee depreciates. Reason being, major export markets for these units are the non-dollar economies like the African countries. As their overseas clients in these developing countries too are hit by currency fluctuations, demand for drugs has failed to pick up.
Kamlesh Patel, chief executive officer of West Coast Pharmaceuticals, a city-based company, said, " Exports have not picked up for us as most of the geographies we do business with are also grappling with currency fluctuations. Our clients in the African countries are buying dollar at higher rates now compared to a year before period. Therefore, import costs have risen for them too, thus resulting in no pick up in orders placed".
West Coast Pharmaceuticals exports 25 per cent of its total production which is valued around Rs 8-9 crore to countries like Kenya, Nigeria and Zambia in the African continent.
If we take a look at these economies, Bank of Zambia has come up with a ban against quoting goods and services in American dollars in order to strengthen the domestic currency Kwacha.
The continuous decline of the Nigerian Naira has put pressures on the country's forex reserves. Hence Patel says that there have hardly been any increase in inquiries from these countries this year.
With relatively limited infrastructure, smaller and mid-sized firms find it difficult to meet European Union or US Food and Drugs Administration norms.
"Africa is an easier market to crack with relatively liberal regulatory framework. Also the organised sector is not very well developed in these countries", Mahendra Patel, managing director of Lincoln Pharmaceuticals pointed out. Smaller firms are thus not looking at tapping newer geographies at the moment. While US and Europe offer higher margins, they are relatively difficult markets to crack.
What has come as a double whammy for these companies is the rise in input costs, which, in turn, has set the cost of production spiralling.
"Many formulations require at least 60 per cent of active pharmaceutical ingredients (APIs) to be imported from China. As cost of import has risen, the overall cost of production has risen by around 10-13 per cent in some cases and by 20-25 per cent in case of certain other products which require higher degrees of import", Chirag Doshi of Indian Drug Manufacturers Association (IDMA) Gujarat chapter said.
Lincoln's Patel pointed out that companies can now focus on drugs that require APIs which are available in India. "If one can keep the import costs under check by altering the product mix, then overall profitability can be ensured", he added. Patel's company has decided to focus on sterngthening marketing initiatives in its export destinations, so that it can push export demand.
Gujarat pharmaceutical companies had exported over Rs 9000 crore worth drugs in FY12, Doshi informed.
While the figure for April to June is not yet available, a senior IDMA official said on grounds of anonymity that net exports from the state are up by around 4-5 per cent on the back of pharma majors like Zydus Cadila and Dishman Pharmaceuticals and Chemicals.
"Export growth from small and mid-sized firms, however, have remained static so far", the official added.