Fall in rupee may not be rosy for pharma firms

Recent fluctuation in currencies has made Gujarat-based pharma companies anxious as they may not be able to reap heavy price benefit due to rupee depreciation. According to industry insiders, overseas buyers seem to have started renegotiating prices of export orders on account of Indian rupee's sharpest fall in past two and a half years.

India's pharmaceutical exports is worth Rs 40,000 crore and Gujarat's contribution is in the range of Rs 11,500 crore. Even as industry looks at better prospects with higher dollar realisations, measures being taken by overseas buyers like renegotiation of prices may contain their prospects for attractive earnings. Considering economic factors such as high interest rates and high inflation, industry anticipate coming quarters to be challenging. "The business undertone is positive as demand side is good but next two quarters look challenging considering current domestic economic scenario. Also fresh export orders are being renegotiated. Hence, industry may not be able to get price benefit due to depreciation of rupee," said Sanjay Majmudar from Dishman Pharmaceuticals and Chemicals Ltd.

Indian rupee has fallen by over 12 per cent so far during the current calendar year at Rs 50.58 per dollar on Tuesday, after hitting an intra-day high of Rs 50.71, which is the lowest level since March 31, 2009. Many of the pharma companies have high exposure to western markets for export of active pharmaceutical ingredients (APIs), formulations and intermediates. But looking at the uncertain currency situation and renegotiation of prices taken up by international buyers has made companies wary of a possible pressure on margins over the next couple of quarters. Also large pharmaceutical exporters, who had hedged their export orders in forward contract are feared to incur loss.

"Depreciation of rupee is too sudden, which is why those exporters who hedged their positions by selling dollar in forward at the rate of about Rs 46-47 per dollar are at loss. In the organised pharma industry, nearly 75 per cent of corporate would have locked in their export sales in advance, hence the depreciation of rupee brings no cheer for them," informed Majmudar. Meanwhile, smaller players, who adopted spot transactions are likely to gain from the current currency depreciation. A large number of pharma units in Gujarat are small and medium enterprises.

"Present situation of depreciating rupee is favourable to exporting companies but there could be marginal pressure due to costly imports of raw materials. However, we import less, hence in totality, for the small industries, the situation is beneficial," informed Mahendra Patel, MD, Lincoln Pharmaceuticals Ltd. Gujarat is considered as a hub of India's pharmaceuticals industry with over 5400 manufacturing licenses in pharma and healthcare space. Gujarat contributes about 30-32 per cent to the country's net turnover of Rs 90,000 crore of pharma production.