Rupee depreciation to hit SmithKline, Pfizer - Views on News from Equitymaster

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Rupee depreciation to hit SmithKline, Pfizer

Jun 13, 2000

The recent depreciation of the rupee is likely to hit mutinational pharmaceutical companies such as SmithKline Beecham and Pfizer quite adversely. This is primarily because imports not only account for a relatively larger proportion of their raw material cost but these companies also import a substantial amount (in terms of their raw material imports) of finished goods. (SmithKline actually imports its Hepatitis–B formulation Engerix from the Belgium plant of its parent.)

  Imports (Rs m)
Company Raw Material Finished goods
SmithKline Pharma 75.1 679.7
Pfizer 93.1 99.1

While the Indian companies such as Ranbaxy, Cipla and Dr Reddys should be net gainers of the rupee depreciation since their exports account for a decent proportion of their turnover, the fact remains that unless their exports account for value added formulations the foreign buyers usually insist on proportionate discounts (proportionate to the value of depreciation). The net impact would however be positive for these companies.

Company Exports
(Rs m)
(Rs m)
Exports / Sales Imports of
Raw Material
Ranbaxy 8,138.1 3,138.2 48.8% 48.4%
Dr Reddys 1,184.2 761.2 27.8% 46.0%
Cipla 1,163.5 5,520.4 18.9% 30.0%
Glaxo 761.9 683.4 8.6% 12.2%
SmithKline Beecham 190.6 760.5 5.9% 24.0%
Pfizer 67.0 201.8 2.0% 10.8%
German Remedies 59.0 11.9 9.8% 31.6%

There are also companies such as Glaxo and German Remedies, which import certain bulk drugs from their parents but they also serve as a sourcing base for the supply of older formulations to their parents. For instance Glaxo imports cefutoxamine (the bulk drug for Ceftum) from its parent but also supplies ranitidine to its parent. For these companies while the overall impact of the depreciation of the rupee would be negative it would be alleviated to some extent due to their exports.

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