Devaluation of Russian currency casts shadow on Indian pharma sector
Unchecked rouble slide could hurt profits, say analysts
Russia is the second-largest export destination for Indian pharma exports, after the US, which accounts for a majority of exports. The sharp devaluation of the Russian currency, by nearly 50%, has, however, cast a shadow on the Indian pharmaceutical sector, especially with companies that have a significant export basket to the region.
Dr Reddy’s Laboratories earns close to 15% (US$328m) of its sales from Russia, while Ranbaxy earns $188m, Glenmark has $89m, JB Chemicals has $15m and IPCA has $5m. For Glenmark, the share of Russian exports is 9%, while that for Ranbaxy is 8.5%.
The political crisis in Russia and weakening crude prices have resulted in the sharp rouble depreciation against the US dollar, at over 83% since March 2014. Analysts said an unchecked rouble slide would hurt profitability, especially if the rupee holds stable compared with the dollar.
JB Chemicals earned $14.83m from its exports to Russia. As the working capital cycle in Russia is higher by 200 days and more, it also blocks money for Indian companies.
The impact of the devaluation, apart from lowering the value of exports, is also expected to be felt on drug demand. Analysts have said there is also the risk of increase in receivables and bad debts. This can affect both exports and the local operations of subsidiaries.
Indian companies have several local subsidiaries in Russia, which distribute these products either directly or through distributors. The rouble’s devaluation is likely to have an adverse effect on the Russian side of the business.
Like Russia, the currency in Latin American countries has also declined significantly. This region also sees good exports from India. The combined value of exports to Russia and CIS and Latin America would be in the region of 40%, said analysts, adding that the companies being most affected in the Latin American region would be Glenmark, Torrent Pharma and Ranbaxy.
