Pharma body SOS; firms bet on hedging

RUPEE RISE: IMPACT ANALYSIS

Pharmaceutical exporters are fearing a huge loss in export revenue due to the continuing appreciation of the rupee. The exporters have complained that the government is shielding only select industries from the impact of the rupee rise.

In a message to Commerce Minister Kamal Nath today, Pharmaceutical Export Promotion Council (Pharmexcil), the representative body of drugs exporters, asked the government to extend relief measures like higher DEPB (Duty Entitlement Passbook Scheme) rates and 6 per cent concessional rate on post- and pre-shipment credits to all exporters.

"The rupee strengthened 63 paise overnight. This cannot be absorbed. There is no guarantee the rupee will not appreciate further. We want the government to announce uniform relief measures for all exporters," said Pharmexcil Chairman DB Mody.

The measures suggested by Pharmexcil include a concessional rate of interest on credit for pre- and post-shipment credits, differential currency rates and extension of income-tax exemption up to 2009.

In a representation to the Director General of Foreign Trade on August 28, Pharmexcil had sought inclusion of Russian Federation and Ukraine under the Focus Market Scheme to partly nullify the impact of the rupee rise. The council fears the small and medium export-oriented pharmaceutical firms that do not have hedging arrangements will have to take a 5-10 per cent hit on their bottom lines.

While the impact will be severe on merchant exporters who spend rupee to get their products and earn dollars at a pre-fixed rate, the impact will be minimal on larger firms like Ranbaxy, Sun and Wockhardt due to their global presence, which acts as a safeguard against their net exposure to the rupee.

Most leading pharmaceutical firms have large staff abroad who are paid in dollars. To that extent, a weak dollar helps them. "Unlike the software sector, the pharma industry imports a lot of raw materials like solvents, exepients and API (active pharmaceutical ingredients), which will become cheaper," said an industry expert, adding that this might have a neutralising effect. Pharmaceutical exports of $ 6.13 billion contributed 5 per cent to the country's net export earnings of $125 billion in 2006-07.

The effect of the rupee appreciation on the share prices of domestic pharma majors was minimal. While the share prices of Ranbaxy, Dr Reddys, Sun Pharma and Lupin were down by just over 1 per cent, there was no impact on Cipla, Nicholas Piramal and Wockhardt.