Pharma: emerging blues
With a few weeks left to go for the quarter to end, if foreign currencies in EMs continue to depreciate, then it is likely to affect the earnings of companies
Pharmaceutical companies’ increased exposure to the emerging markets (EMs) has made their earnings vulnerable to the macroeconomic problems of these markets.
EM currencies have been battered, posting sharp drops in value versus the dollar. In some cases, such as Russia, these problems have caused disruptions in local business.
But in most cases, the currency fluctuation has led to negative effects in rupee terms in the consolidated results due to translation.
The downgrade of Brazil’s sovereign rating gives more reason for worry.
A report by JM Financial Institutional Securities assesses the likely impact of EM foreign currency volatility on companies in its coverage.
Sun Pharmaceutical Industries Ltd and Lupin Ltd have the highest exposure to the dollar and the least to EM currencies, says the report. Cipla Ltd, Torrent Pharmaceuticals Ltd and Ipca Laboratories Ltd have high exposure levels. It has also flagged Dr Reddy’s Laboratories Ltd’s exposure in Venezuela, which is also there for a few other companies. Though Glenmark Pharmaceuticals Ltd is not under JM’s coverage, it has flagged it as a company with an “aggressive" EM strategy.
With a few weeks left to go for the quarter to end, if foreign currencies in EMs continue to depreciate, then it is likely to affect the earnings of companies. While these are mostly translation-related effects and the underlying business may remain sound, these problems are not going away soon. That may worry investors as it may affect their financials for some time to come.
The US market, though a large one for most companies, has not been its usual self. Companies have reported lower realizations and a slow pace of new generic drug approvals. But the current quarter seems to have seen a pickup in approvals.
Another crucial market is India. The latest report from AIOCD Awacs, a market research agency, says that the Indian pharmaceutical market has seen sales growth of 13.4% in the three months ended August. That is one bright spot that will be welcomed by Indian pharmaceutical companies.
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