Currency fluctuation in semi regulated markets to hit Indian pharma: Fitch


MUMBAI: Indian pharma exporters road to recovery might still take time as weak economic and political conditions in Africa and currency volatility in Latin America (LATAM) are likely to weigh on the consumption of pharmaceutical formulations according to India Ratings and Research (Ind-Ra), a rating firm of Fitch Group. This fluctuation is expected to put pressure on the medium term growth prospects for India’s exporters. 

India’s pharma exports to the semi regulated markets of LATAM and Africa had proved to be a robust market up until 2014, however in FY17 India’s pharma exports to these markets were the lowest registering a 0.7% growth. While the LATAM market growth declined by 7% year on year, the African market slowed down by 4%. Indian drug makers had diversified to region like Eastern Europe, South America and Africa in an attempt to diversify their risks emerging from regulated markets like the United States and Europe. However the political turmoil in Venezuela that resulted into the devaluation of Venezuelan Bolivar forced Indian drug makers to write off their exposure in the country. Adding to the woes was also the sharp depreciation of Russian rouble in FY15, Ind-Ra notes that continues to impact the recovery in these region. 

“Most exporters with a low pace of generic product approvals in the regulated markets had earlier explored product filings in most semi-regulated markets to recover investments through faster approvals and subsequent volume off-take,” said Ind-Ra in its report. “However, they are placing high importance on margins and cash flow security over volumes, given the present challenging currency environment,” the rating firm added. 

The agency expects weak macros to protract export slump in Africa and LATAM, a weak recovery in CIS countries and moderate growth in exports to Asia and the Middle East for the near to medium term. It also noted that most Indian exporters are rationalising presence among semi-regulated markets, avoiding markets where risks outweigh opportunities. 

However despite the slow down, Ind-Ra thinks that the long-term underlying fundamentals of the semi-regulated markets remain intact, as it thinks the demand for the treatment of chronic diseases will boost generics uptake due to limited budgets and high out-of-pocket expenditure. The increasing drive for universal healthcare insurance in developing Asian markets and GCC countries is also likely to boost generics uptake and benefit generics players over the medium to long term, the agency noted.