With financial results for the quarter round the corner, small- and medium-sized, export-oriented pharmaceutical companies are expecting a 5-10 per cent decline in their bottom line for the April-June period, owing to the rupee appreciation.
The impact will be minimal on the larger companies such as Ranbaxy, Sun and Wockhardt, as they are fully hedged against the net exposure of the rupee in the international markets.
"The effect of rupee appreciation will be severe on companies, which are primarily export-oriented. Any pharma or contract manufacturing firm, whose 60-70 per cent revenues come from foreign markets, will find its bottom line affected by around 10-12 per cent. The companies are unable to compensate for the losses due to the long-term contracts," Venkat Jasti, managing director, Suven Life Sciences, said.
Suven, a major Contract Research and Manufacturing Services player, has most of its revenues from foreign contracts. However, major players are unfazed. "We have 10 production facilities outside the country that serve as automatic hedging towards rupee-dollar transactions," a Ranbaxy spokesman said.
Suven, a major Contract Research and Manufacturing Services player, has most of its revenues from foreign contracts. However, major players are unfazed. "We have 10 production facilities outside the country that serve as automatic hedging towards rupee-dollar transactions," a Ranbaxy spokesman said.
Sun Pharma also expects a minimal impact due to rupee appreciation. "Over 40 per cent of our revenues come from international business and we were a net exporter by Rs 200 crore (Rs 2 billion)
last year. We are also a foreign currency borrower, thereby expecting a positive impact." a Sun Pharma spokesperson said.
Dr Reddy's declined to comment as it is in a blackout period prior to the result announcement.
"Unlike the software sector, the pharma industry imports lot of raw materials such as solvents, exepients and API (active pharmaceutical ingredients). All these imports have become cheaper due to the rupee appreciation. Thus the pharmaceutical sector has a neutralising factor in its favour. However, companies will have to hedge against the growing net exposure if they have to minimise the negative effects," Sujay Shetty of PricewaterhouseCoopers said.
Meanwhile, Pharmaceutical Export Promotion Council (Pharmexcil) fears that the bottom line of medicine exporters may take a hit of at least 5 per cent due to the strengthening of the rupee against the dollar.
"The industry, which had an export revenue worth over Rs 21,000 crore (Rs 210 billion) during 2006-07, does 80 per cent of its export transactions in dollar.
"The industry, which had an export revenue worth over Rs 21,000 crore (Rs 210 billion) during 2006-07, does 80 per cent of its export transactions in dollar.
The continuing appreciation of the rupee against the dollar and an ever-increasing interest cost within India will hit us hard," D B Mody, chairman, Pharmexcil, said.
