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Rupee’s fall against dollar sinks profit margin of domestic drug makers
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Laxmi Yadav, Mumbai
July 25 , 2022
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The Indian rupee’s fall against US dollar appears to be impacting the profit margin of the drug industry which is heavily dependent on imports. The weak rupee has made import of active pharmaceutical ingredients, excipients as well as packing materials more expensive.
The rupee has depreciated over 7 per cent against US dollar this year. On July 19 the rupee dropped to 80 against the US dollar. The depreciation of the currency has eroded profitability of domestic drugmakers as they are unable to raise prices because of the drug price control regime.
The pharma industry is witnessing a decline by 19-20 per cent in profit margin in the first half of FY 2022-23 owing to the increase in raw material prices, cost of packaging material, freight and compliance costs, according to a report by CareEdge.
Due to supply chain disruptions and prevailing lockdown in China, the prices of several APIs or KSMs have already increased by 25 per cent to 120 per cent, while prices of excipients have risen from 15 per cent to 200 per cent during the past 12-18 months. Apart from raw materials, the cost of other input materials has also been increased from 25 per cent to 100 per cent over the last six months, the report stated.
Said Raheel Shah, director of BDR Pharma Pvt Ltd, “As the rupee hit its all-time low and breached the psychological mark of 80 per dollar, this will add to the current margin pressure of the entire pharmaceutical industry at large. Since import prices go up with a depreciating rupee, it makes items and commodities more expensive, pushing inflation and there is likely to be an indirect impact on loans. However, now would be a good time for Indian investors to dollarise their investments, as it’s a positive for companies exporting.”
Contrary to the common belief that the depreciation of the Indian rupee is a good sign for exporters as it increases their cash flow, profit margin of a significant number of pharma MSMEs exporting to African and CIS countries are likely to be eroded due to the fall in Indian currency as well as currencies of several African and CIS countries.
The currency of Kenya, which is East Africa's largest economy, reached 115.35 per dollar on July 22, having depreciated 1 per cent in March. India exports of pharmaceutical products to Kenya was USD 270.84 million during 2021, according to the United Nations COMTRADE database on international trade.
Said Amit Chawla, secretary, MP Small Scale Drugs Manufacturers’ Association, “Pharma MSMEs are mainly exporting to African and CIS countries which have witnessed a significant depreciation of their currencies against US dollar since last few months. The depreciation of currencies has forced a significant number of importers in African and CIS countries to put order on hold or delay the consignments.”
“The industry is facing a steep rise in prices of raw materials and packing materials since the outbreak of Covid-19 pandemic. The depreciation of rupee has led to a significant rise in input costs which we can not pass on to consumers due to drug price control regime,” he said.
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