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Pharma firms to gain on depreciating rupee

Source : BUSINESS_STANDARD
Last Updated: Mon, Dec 19, 2011 20:12 hrs

Revenues and earnings to improve for companies with low forex liabilities and no forward cover.

The falling rupee is expected to benefit pharmaceutical companies in a positive way, claim analysts. The local currency has depreciated 18 per cent over the last few weeks and this spells good news for domestic pharmaceutical firms. Last year, the domestic pharma market grew at 15.3 per cent, nearly three times the growth in developed markets, says Centrum’s Ranjit Kapadia. While this growth is expected to continue this year too, the falling rupee will add to it.

Analysts say, for several large players, half the total revenues come from global markets. For these, the falling rupee will shore up earnings and revenues. But, only those having no or low forex liabilities and forward covers will gain. For instance, 91 per cent revenues of Divi's Laboratories come from global sales, so the rupee fall will impact these by an estimated 12 per cent in the second half of FY12 and seven per cent for the full year. According to Emkay Global, the firm has not taken any forward covers and, as a result, the rupee depreciation will have an estimated positive impact on Ebitda of 37 per cent in the second half of FY12 and 21 per cent in FY12. Overall, the profit after tax (PAT) is expected to increase 37 per cent in H2 and 21 per cent in FY12.

Like Divi's, there are several others that have a high share of global sales and low forex liabilities. Dr Reddy's, for instance, derives 80 per cent of its revenues from global sales, but the firm has taken forward covers of $775 million and hedged its cash flows. As a result, the impact on the Ebitda will be limited to 14 per cent in H2 and eight per cent for the full year. The company has foreign currency loans of $200 million. According to analysts, the overall PAT is expected to increase 16 per cent in the second half of this year and nine per cent in FY12. Cipla is another player that will see some benefit flowing into its bottom line due to a weaker rupee.

However, Glenmark is unlikely to benefit much from the rupee, though 72 per cent of its revenues come from global sales. Though the company has not taken any forward cover, it has foreign currency loans of $350 million, which will result in raising total liabilities by Rs 155 crore in FY12. Despite this, PAT is expected to remain flat, claim analysts.




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