Credit-starved US clients ask drug cos to stop shipments

Credit-starved US clients ask drug cos to stop shipments

Mumbai: Drug exporters in India are increasingly being asked by their credit-starved US clients to stop or defer shipments until further notice, likely leading to a further fall in exports in fiscal 2010, according to the Pharmaceutical Export Promotion Council, or Pharmexcil, the country’s drug exports promotion body.

Pharmexcil had revised the export revenue growth projection for the current fiscal from 30% to 20% earlier this year due to factors such as market uncertainty, currency-market volatility and and escalation in raw material import costs. It said the stop-shipment order to several large exporters could lead to another 10% fall in export revenue growth in fiscal 2010.

India’s drug exports, which include formulations or pills, capsules, injections and other oral solutions, and bulk drugs or active drug ingredients, reached $7.2 billion (Rs29,139.54 crore at then-prevailing rates) in the fiscal year ended 31 March, and were projected to rise to $8.6 billion (Rs43,077 crore) in fiscal 2009 as per the revised estimates.

Although the rupee has depreciated more than 20% against the dollar this year, exporters have failed to derive advantage because they had hedged against currency fluctuations in the market betting the dollar would extend losses from last year.

Pharmexcil chairman Venkat Jasti told Mint that many members of the council have already received letters from US clients asking to stop sending consignments till further communication, and to cut short the 90-day inventory position to defer the payment schedule.

However, the decline is unlikely to affect the current fiscal since there is typically a three-four-month lag for fresh orders and most buyers hold a three-month inventory.

Jasti, however, declined to give names of the large exporters likely to be affected. “There will be more now, especially to the small and medium exporters, and the holiday season in the US will also be used as reason by the buyers to defer the orders," he added.

“Due to credit crunch in the market, many clients in the US are not able to maintain the payment cycle as followed in the past," Jasti said on the sidelines of a national conference on clinical trials held in Mumbai on Monday by the Confederation of Indian Industry and the department of science and technology.

“Though the expected slump in export growth in fiscal 2010 is not yet calculated accurately as there could be variations in the actual execution of consignments, it’s going to be more than 10% as the market growth is also not very impressive in the Western markets now," said a senior executive from Pharmexcil on condition of anonymity because he is not authorized to speak to the media.

Pharmexcil has about 2,800 members, of which at least 90% are active in exports to the US and Europe. However, the top 20 drug makers account for close to 65% of the country’s total pharmaceutical exports.

Cipla Ltd, one of India’s largest drug exporters, said it hasn’t faced any serious impact of the credit crunch so far, but managing director Arun Lulla said, “No country can be an island which will resist the global economic trend. It is going to reflect some way or the other."

The US is currently the biggest market for Indian drug exporters, accounting for 46% of the export revenue, followed by four key markets in Europe.

G.V. Prasad, vice-chairman and chief executive of Dr Reddy’s Laboratories Ltd, said there is already a shift in the export market focus among Indian pharma firms, as they move from Western economies to emerging markets such as Brazil, Mexico and Russia.