Pharma SMEs from Gujarat see 20% growth in exports

Focus on exports as domestic market becomes competitive with DPCO 2013

While big pharma companies are facing hurdles on the export growth front thanks to the issues with the US drug regulator, in contrast, small and medium enterprises (SME) have seen a good growth in formulations exports this fiscal.

Pharma SMEs in the state of Gujarat, which is considered a pharmaceutical manufacturing hub and houses over 200 WHO-GMP certified manufacturing facilities, have clocked a 15-20 per cent growth in exports to semi-regulated markets this year.

It is interesting at a time when even Pharmexcil sources have indicated that while the target for this fiscal was around 15 per cent growth in exports over Rs 79,500 crore worth exports from India 2012-13, with the current conditions, it looks like pharma exports would be able to clock a 10-12 per cent growth over last fiscal. Gujarat had a nearly 22 per cent share in all-India pharma exports in 2012-13.

R S Joshi, executive secretary of the Indian Drug Manufacturers Association (IDMA), Gujarat State Board, too admitted that while the expectation of growth in exports from Gujarat was around 16 per cent, as of now, it looks like exports would manage to grow by about 11 per cent from the state. "However, SMEs have outperformed big pharma companies in terms of growth rate. Exports to regulated markets like the US and the European Union are hit. But, as SMEs export to semi-regulated markets, their growth has not been impacted," he explained. Joshi further added that share of SMEs in overall exports from Gujarat is around 70-80 per cent.

K S Chhabra, managing director of Hindustan Biosynth, a Vadodara-based pharmaceutical firm said that most SMEs from the state are exporting to countries like Philippines, Sri Lanka, Thailand in the South Asia block, apart from countries like Nigeria, Kenya, Ghana in the African continent. "Some of the SME units have even managed to clock over 20 per cent growth rate," he claimed. Of the net exports by SMEs from the state, the share of emerging markets is close to 60 per cent, which is growing at a 30-35 per cent rate every year.

Take for example, Saga Laboratories which exports oral dosage forms to countries in Africa, Latin America and Commonwealth of Independent States (CIS). When it had started in 1994, exports hardly comprised 5-10 per cent of its net turnover; and the rest came from sales in the domestic market. However, as V Shah of Saga explained, "We soon realised that the domestic market is more cost competitive and margins are less, and hence increased focus on exports. Now, we export almost our entire production."

Further, in the backdrop of the recently implemented Drug Price Control Order (DPCO) 2013, SME pharma are also enhancing their focus on exports as the domestic market gets more competitive.

With expected margin erosion in the range of six per cent, and reduced cash flows, SMEs are having a tough time when it comes to investing to diversify into non-DPCO products.

In contrast, big pharma companies are increasingly coming under the scanner of the US Food and Drug Administration (USFDA).

The latest in the list being Sun Pharmaceutical's Gujarat facility at Karkhadi which recieved an import alert earlier this month.