Indian pharma in for tough times as exports fall

Is India’s famed pharmaceutical sector, known globally for its cheaper generic medicines, swallowing a bitter pill now? It looks like so going by the exports, the sector’s staple diet for growth, in the first half of the current financial year.

In US dollar terms, the pharmaceutical exports from India fell by over one per cent in the six months to September this financial year as pricing pressures and a host of other factors took a big toll on the overseas shipments from the Indian drug makers.

Yes, our pharmaceutical sector is going through tough times and as result, exports have fallen by 1-1.5 per cent in dollar terms in the first half of this fiscal,” Dr P V Appaji, Director General, Pharmaceuticals Export Promotion Council of India (Pharmexcil), told The Hans India.

He attributed the fall - the first such decline in the past seven years - to several factors including the pricing pressures and increasing competition from other countries. “There is steep erosion in prices in the wake of increasing competition from other countries.

Also, Indian companies launched several blockbuster products in global markets, including the key US market, last year. But that’s not the case now as not many key drugs have gone off-patent this year,” he explained.

He also cited policies unveiled by several countries as a reason for the decline. India’s pharmaceutical products are exported to 200 countries across the globe with the US and South Africa topping the list. Many countries are tightening regulatory norms for the drug imports.

Besides, our companies are setting up manufacturing plants in other countries to be closer to the markets. This has also led to the decline in the exports.

Though the companies which set up such plants doesn’t see any fall in its business, but exports from the country will obviously come down to that extent,” he explained.

However, the depreciated rupee has come to the rescue of some of the companies as exports, according to Dr Appaji, have expanded by two per cent when measured in the Indian currency. But, that’s miniscule when compared to the growth the sector had clocked last financial year.

The country’s pharmaceutical exports went up by 9.44 per cent in dollar terms to $16.9 billion in 2015-16 from $15.43 billion in the previous financial year.

The growth, however, was 17 per cent in rupee terms at Rs 1,10,522 crore in FY16. Drug formulations and biological, which account for bulk of the exports, zoomed 12.76 per cent to $12.6 billion from $11.2 billion in 2014-15.

The US market, which contributed a lion share of 32.58 per cent to the India’s drug exports pie last year, consumed Indian drugs worth $5.5 billion, a 28 per cent or $1.2 billion growth from $4.3 billion in 2014-15, according to the Pharmexcil’s Annual Report for 2015-16.

These stellar growth numbers of the last fiscal notwithstanding, the subdued performance of the sector so far this fiscal has already left several pharmaceutical companies reeling under financial stress.

The case in point is that of the city-base Dr Reddy’s Laboratories Limited which reported huge fall in net profit and revenues in the first two quarters of this fiscal year.

The country’s second largest drug maker saw its net profit and revenues in the first quarter nosedive by 80 per cent and 14 per cent to Rs 126.3 crore and Rs 3,234.5 crore respectively when compared with the year-ago period.

The company’s second quarter (July-September 2016) numbers were not any better with its consolidated net profit plunging by 59 per cent to Rs 295 crore in the three-month period from Rs 721.8 crore in the same period a year ago.

The sales were down 10 per cent year-on-year to Rs 3,585.7 crore. This poor performance in the consecutive two quarters was attributed to weak generic sales in the US market, the company’s biggest market, and loss of business in Venezuela due to currency volatility.

But Dr Appaji still paints an optimistic picture though, and expects the crucial sector’s exports to post an overall growth of at least five per cent in dollar terms this financial year.

The growth was 9.44 per cent last fiscal year. We are hopeful that the sector’s exports will register a five per cent growth in dollar terms in FY17. General feedback from the industry points towards that kind of growth,” he said. However, the Pharmexcil chief is not sure on how much growth the sector will clock in rupee terms.