Mumbai: The weakening dollar has taken a serious toll on India’s pharmaceutical exports, which generate revenues estimated at around Rs20,000 crore and have been a key source of foreign exchange for the country.
Pharma exports have seen a drop of 20% in value during the April-June quarter with total exports, at Rs5,054 crore, not only missing the 14% growth that the industry had expected, but falling well below the year-ago period’s Rs6,069 crore in export revenues.
The quarter marked the first time in five years that pharmaceutical export revenues have declined. With the rupee, which has appreciated by 12% in the last six months, staying strong, India is likely to miss its export target for the year by more than 25%, predicts industry lobby, Pharmaceuticals Export Promotion Council, or Pharmexcil.
Pharmexcil joins several other sectoral lobby groups pushing for some form of handouts from the Centre.
“It’s time for the industry as well as government to devise some mechanism to help exporters balance the revenue loss. It could be either an interest subsidy or an aid to explore non-conventional markets for encouraging non-dollar currency exports,”says Pharmexcil chairman Venkat Jasti.
Cipla Ltd, the largest drug exporter from India, says its export revenue in the first six months have shown a 10-11% decline due to a weak dollar. “It’s a reality now and we have to live with it. Hence, our strategy now is to divert our focus to the other currency markets such as Europe and Africa,” says Cipla company secretary S. Radhakrishnan.
Industry analysts aren’t sure that will do the trick.
“Shifting the focus to other markets will not be of much help to these companies as majority of the export markets still trade in dollar terms. Though cost savings on imports and foreign spend would help balance the cost, a 12% rupee appreciation will remain an impact on their topline,” says Kirit Gogri, an industry analyst at JM Financial ASK Securities Ltd.
India’s domestic pharmaceuticals market, valued at $8.16 billion (Rs37,528 crore then) in 2006-07 by sales, grew at an annual rate of 12.4% in the past five years even as exports grew at a higher rate of 20% to reach $6.15 billion.
While the domestic market is expected to scale up to $14.5 billion by 2011-12 at an annual growth rate of 16%, exports were projected to increase much faster, at 35%, and reach $25 billion in the same period. That would have meant exports contributed some 63% to the sector, up from 43% in 2006-07, according to a previous projection by Pharmexcil.
“The process of rupee appreciation was so sudden, as a 10% growth in a period of just six months is something that no export-oriented industry could expect. Because of this, many companies, including us, had incurred a cost even as we tried to adjust the same with dollar spending in those markets,” said Pranav D. Modi, executive director, JB Chemicals and Pharmaceuticals Ltd, an exporter of active pharma ingredients and formulations from India.
The rupee-dollar equation is now expected to impact the industry beyond exports.
Indian drug makers are anticipating potentially huge opportunities for their generics business outside the country as patents are set to expire on at least half a dozen blockbuster drugs by 2012. But they are unlikely to meet their revenue targets, despite massive capacities being built both in India and abroad, in part because of the appreciating rupee.