The Hindu Business Line : Re impact: Pharma companies expanding currency baskets

Hyderabad, Sept. 24 As rupee appreciation now appears to be a long-term phenomena, pharma companies, including majors like Dr Reddy’s, are hammering out strategies including expanding foreign currency baskets to minimise the impact.

“While nobody can predict how rupee behaves in the long-term, there is a need for chalking out company-specific strategies to tackle rupee appreciation. It is certainly an issue,” Mr K. Satish Reddy, Managing Director and Chief Operating Officer, Dr Reddy’s Laboratories Ltd, told Business Line here.

Hedging

The Hyderabad-based major could, however, manage to improve gross margins (51 per cent) and net income in the first quarter of current fiscal by hedging and use of ADRs and hinted that its capacity to hedge in subsequent quarters was limited.

As the rupee appreciation is continuing well into the second quarter with no signs of depreciation, the company sees a need for remedial measures.

“As there is little to be done externally, measures like expanding other currency baskets will be of help. This is what we are doing now,” Mr Reddy said.

Euro factor

A greater dependence on euro would be vital in the current scenario, according to Mr Bhaskara Narayana, Vice-President (Finance), Natco Pharma Ltd. “The likely oil imports next month may push up dollar a little. But it will not bring much relief and a 10 per cent hit on margins is already happening. We see a remedy in increasing contribution from euro,” he said.

Cost-cutting

According to Mr Venkat Jasti, Vice-Chairman and Chief Executive Officer, Suven Life Sciences Ltd, cost-cutting may be of some help. “Rupee appreciation is hitting us everywhere. Cost-cutting and increasing internal efficiencies should be taken up,” he opined.

Notwithstanding congruence on the need for remedial measures, many SMEs have no option but suffer hit in the margins.

“Albeit some bulk drug exporters had increased prices to ward off rupee appreciation impact, any further hike will result in market loss and we have to digest the impact,” Mr M. Narayana Reddy, President of Bulk Drug Manufacturers’ Association (India), said.