Bodh Raj Sikri, partner at Haryana-based Next Wave India, a formulations maker for dermatology products, is working on expanding one of his facilities in Hyderabad.
“We make pellets such as Itraconazole, Omeprazole and domperidone pellets for the dermatology segment. We are going for a backward integration for API (active pharmaceutical ingredient) … Currently, we are sourcing API from somewhere else, but now we will make our own,” Sikri says.
And financing this expansion has not been difficult, he says. “During Covid-19, the government had come up with a support scheme for MSMEs (micro, small and medium enterprises). Pharma companies are taking advantage of this and the public sector banks are open to finance,” Sikri says, adding that the Atmanirbhar Bharat (self-reliant India) campaign has been supporting such efforts towards import substitution.
The pharma industry’s reliance on APIs from China, both in India and overseas, had received attention from respective policy-makers, following the Covid-19 outbreak.
Meanwhile, there are other segments of the sector that are also sourcing finance, and without too much trouble, indicates Nikunj Bhagat, Senior Vice-President, Products, CRIF High Mark. Micro enterpreneurs account for 43 per cent of the total credit.
“May be it was a push of (the) Ayush scheme, where you have all the alternative medicines coming in, even during Covid the distribution has been supported through the digital or new-age app platforms, which are enabling distribution. Credit offtake by volume in this segment has seen a good growth. Of course, from the value perspective, the bigger ticket size would increase the value, but volume is the right indicator to check such trends regarding micro entrepreneurs. Segments such as cotton mask production, sanitisers, or protective medical devices are coming from micro entrepreneurs and there is a good demand for credit also, which we see from the data.”
CRIF High Mark, a global credit and business information service provider, and Small Industries Development Bank of India (SIDBI) have, for the first time, put the spotlight on pharmaceuticals, with quarterly reports. In fact, their report revealed an annual growth of about 9 per cent in the overall amount of credit to drugs and pharmaceuticals, at ₹78,000 crore up to February 2020. Impressive, when compared to the sluggishness in other frontline sectors, including automobile, capital goods and infrastructure, among others.
Industry players believe that the road ahead for pharma MSMEs looks smooth and strong.
Viranchi Shah, Director, Saga Laboratories (Ahmedabad), says Covid-19 put pharma and healthcare at the centre of policy making and this will help attract more investments.
“Over the next five years, a lot of finance and investment will come in the areas of research, manufacturing and all other areas. And as for MSMEs, there is good opportunity now. Nearly 70 per cent of the country's overall pharma business comes from MSME. And with all these factors, their business is going to grow,” says Shah, former Chairman, Indian Drug Manufacturers Association (Gujarat).
Between 2017 and 2020, credit to the drugs and pharmaceutical industry grew 50 per cent, from ₹51,831 crore to ₹78,075 crore (February). The CRIF-SIDBI report points out that India’s pharma industry, with a large manufacturing base and a sizeable number of diverse players, is leading to an increased need for funding by various financiers, private, public sector banks, NBFCs and foreign banks.
What corroborates Sikri’s experience is the finding that public sector banks are the largest contributors in providing finance to the pharmaceutical industry.
80 per cent to 10 clusters
In terms of value, ₹75,000 crore was disbursed to the pharmaceutical industry in FY 2019-20 (till date). “Observing the past quarterly trends and simple projections, the credit to the sector is expected to be 13 per cent higher by March 2021, to nearly ₹87,000 crore. But the actual performance may vary due to Covid-19 impact, which may be beneficial or detrimental to the sector,” the report notes.
Interestingly, over 80 per cent of the ₹11,600-crore MSME credit flowed to the top 10 clusters — Mumbai, Hyderabad, Ahmedabad, Delhi-NCR, Chennai, Vadodara, Bengaluru, Solan, Pune and Haridwar.
And unlike other manufacturing sectors, where MSMEs show high levels of financial stress and prevalence of non-performing assets (NPAs), the pharmaceuticals industry witnessed a decline in NPAs, every quarter over the last year, the report said. NPAs for the industry, pegged at 9.5 per cent, were lower by about 3 per cent over the past one year.
Bhagat observes that Indian pharma players are involved in manufacturing solutions for research and production of Covid-19 treatment and vaccinations, so it is unlocking new avenues for them — supported by internal demand and exports. And the next six months will reveal whether pharma MSMEs have managed to hold their own through turbulent times this year.