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P.T. Jyothi Datta

Mumbai, Nov. 24 Exports during a global financial crisis can be challenging. But it has only got more so, with the possibility of delayed payments on exports becoming one more reason to worry for Indian drug makers. Several of them are active in the competitive and now crisis-ridden overseas markets.

Though it is early days yet, the liquidity situation in the country and outside does cause concern, said Cipla’s Chief Financial Officer, Mr S. Radhakrishnan. If the present situation continues, the industry would have reasons to worry on the payment front, he told Business Line.

However, he added, companies that work with reputed clients overseas, may have less cause for concern. When local companies collaborate with innovator drug-majors or credit-worthy clients, the latter may cut down on the sourcing, but not default on payments, said Piramal Healthcare’s Chief Operating Officer, Mr N. Santhanam.

Given the present reality on the ground, credit concerns could be more country-specific, he observed. There is usually a three- six-month credit in the export market. And realisation of payments are less likely to be a cause for worry in the US or the United Kingdom, than say the Latin American or CIS markets, said one drug-maker. Another head of a local drug-company recounted payment problems his company had in the African market.

Pharma exports clocked $7.2 billion in 2007-08, accounting for six per cent of the country’s total exports, according to Pharmexcil, the Pharmaceutical Export Promotional Council. But there are early signs of risk, with banks in trouble in different markets. It is the banks who have to honour the letters of credit and pay for the exported goods that have been sent to the customer, explained Mr Ranjit Kapadia, Research-head of PCG-Prabhudas Lilladher.

In his letter to the Prime Minister, Dr Manmohan Singh, Pharmexcil’s former head, Mr D.B. Mody, points out that banks charge penal interest if the payment on exports is not realised in 180 days. In line with the relaxation of 360 days that has been given to status holders to realise payments, Pharmexcil has urged that banks be advised to charge penal interest only on export outstandings beyond this time frame.

Glenmark’s Director of Finance, Mr Rajesh Desai, agrees that companies exporting to reputed customers may not have cause for concern, just yet. However, he admits, when an entire country’s economy is affected, payment schedules could get affected too and this would affect working capital cycles.

Doing business under such fragile conditions, some drug-makers say they check the credit-worthiness of clients and do not enter markets unless they are confident of getting their payments. In other cases, like that of Sun Pharma, the exposure to third parties is less.

“Exports to third parties are about 13 per cent,” a company representative said. The US business, that brings in 41 per cent of revenues, involves an export to its subsidiary, and hence there is no worry, the representative said, adding that nevertheless, the company remains “cautious and prepared,” in the event of a prolonged crisis.

More Stories on : Pharmaceuticals | Exports & Imports | Financial Markets

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