RBI's Covid relief: Good move, but late, says health care industry

The Indian health care industry welcomed the Reserve Bank of India’s move to open an on-tap liquidity window of Rs 50,000 crore, but some felt it may not make much difference now.
 
While some companies said they were open to borrowing, others felt their working capital cycle was comfortable.
 
The RBI on Wednesday opened up a liquidity window of Rs 50,000 crore with tenors of up to three years to boost the provision of immediate liquidity for ramping up Covid-related health care infrastructure and services.
 
The biggest shot in the arm could come to the vaccine industry here, which is struggling to ramp up capacities to churn out adequate supplies of vaccines needed to inoculate India’s 1.4 billion people.
 
Serum Institute of India (SII) Chief Executive Officer Adar Poonawalla had recently said that they borrowed Rs 1,500 crore in April to manage “additional opex requirements of these large volumes”. SII had also sought a grant of Rs 3,000 crore from the government to start a new facility to make Covishield vaccines. The Centre approved a supplier credit of Rs 3,000 crore to SII for vaccine supplies.
 
Poonwalla did not comment on the RBI move on Wednesday. Queries sent to Bharat Biotech, Gennova Biopharmaceuticals, and Dr Reddy’s Laboratories remained unanswered.
 
Pune-based Gennova, which is making an mRNA Covid vaccine, plans to fund a capex of Rs 250 crore for facility expansion by Rs 70 crore government grants, Rs 135 crore debts, and remaining from internal accrual, CRISIL had said in a statement.
 
Rahul Prithiani, director of CRISIL Research, said the major beneficiaries would be the pharmaceutical manufacturers, vaccine makers, health care equipment manufacturers, hospitals, and diagnostic players.
 
“Penetration of hospitals/dispensaries may increase as players can now opt for funding towards capex in the view of the pandemic. Also, diagnostic chains can take up this opportunity to penetrate in tier-II and beyond cities,” he said.
 
CRISIL felt the scheme was a good boost to the stalled capex plans by players, thus encouraging adequate health care delivery in the country.
 
Hospital players such as Manipal Group said the move was an “encouraging step for organisations to embark on a rapid scale-up programme”. “Since the capabilities created would be versatile, it would contribute beyond the pandemic to improving the overall ability to raise the standards of health care delivery,” said Dilip Jose, MD and CEO of Manipal Hospitals.
 
“We have invested already, but may need to do more to scale up ICUs and higher-end infrastructure,” he said.
 
Some medical devices players, however, felt the move may not mean much now. Invasive ventilator manufacturers like Skanray and Max say it will not so much benefit the greenfield capex requirement of the industry as much as working capital.
 
“The liquidity push will be extremely useful for med-tech companies for working capital. During the previous wave many companies could not avail working capital,” said Alva V, founder of Skanray Technologies.
 
However, according to Max Ventilators’ Founder and MD Ashok Patel, the liquidity push will only make sense if ventilator buyers like hospitals are also equally incentivised.
 
“Hospitals need to be incentivised because once ventilators are bought what will they do after Covid subsides? Also, timely disbursement from banks will have to be pushed by RBI since by the time this is implemented it would be some months since the announcement," Patel added.
 
Small and medium players in segments like oxygen manufacturing and personal protective equipment (PPE) kits believe the liquidity push should be complemented by manufacturing subsidies from the government, too.
 
“Some of the health care infrastructures like medical oxygen are highly capital intensive and once we invest into something that big and the Covid situation comes under control, then the demand will suddenly go down as it went during January-February 2021. In such a scenario, repaying in two years is going to be a challenge. Hence, on one hand, RBI and banks should look at extending repayment schedules. On the other hand, the government should also look at providing a manufacturing subsidy on investments in the current scenario,” said Shwetanshu Patel, director at Aims Industries, one of the leading medical oxygen suppliers in Gujarat.
 
Some players are, however, comfortable with their capital requirements. For example, leading syringe maker Hindustan Syringes and Medical Devices (HMD) said that it was using reserves that it had conserved. “Last four-five years, we were stagnating as imports flooded the market and we built reserves for the rainy day. If our distributors can borrow, then our cash flow issues are addressed,” said Rajiv Nath, CMD of HMD.
 
Pharma major Cipla, which is making key Covid-19 drugs like remdesivir, favipiravir, molnupiravir, and also importing tocilizumab, said they did not think they needed liquidity support at this stage. “Our working capital cycle is decent,” said Kedar Upadhye, global CFO of Cipla.
 
Lab chains that have expanded to handle the surge in Covid testing demand, felt the move would largely benefit MSMEs and smaller players.
 
According to Neuberg Supratech’s group Vice Chairman A Ganesan, with the current testing infrastructure in the country still needing ramp-up, the move could benefit setting up more greenfield labs, especially in tier-II and tier-III cities.
 
“Traditional testing has come down which has affected smaller labs and this move might mitigate the impact,” he felt.
 
A Velumani, Founder and Chairman of Thyrocare Laboratories, echoed the same: “For us funds were never a limitation. We are a zero-debt company. Let those who need to borrow. It is a good scheme.”

 
(With Inputs from Aneesh Phadnis in Mumbai)