Indian pharma companies' Venezuela Challenge

Imagine exporting goods to your subsidiary in a foreign country, which in turn sells it in the local market, recovers its dues from the market and the distributors, but is not able to make any remittances to you for your exports.

The Indian pharma companies are facing a challenge of this sort in Venezuela, whose foreign exchange controls have made repatriation of funds difficult for companies operating in the country.

Instead, some of the Indian pharma companies exporting to this region now have cash lying there in local currency. This has directly impacted leading Indian pharma companies like Dr. Reddy's, Glenmark, Sun Pharma, Claris and Strides that operate in Venezuela through their subsidiaries.

Today, based on data from some companies and estimates from analysts, a back-of-the-envelope calculation shows total exports to the country from Indian pharma companies at around $300 million. In fact, Venezuela was so far seen as a growing market with most seeing scope for growth considering shortage of medicines in the Venezuelan market.

Today, many of the companies exporting to Venezuela instead have to cope with their cash just residing in the country. As is to be expected, the quantum of cash lying there varies for each company. For instance, in case of Dr Reddy's, it is $60 million and between $30 million and $35 million for Glenmark.

In terms of exports to the region, Dr Reddy's exports to Venezuela last year was around $130 million and for Glenmark it was around $50 million. Analysts do not see Venezuela as a very big market for Indian pharma but do feel that in the past two years, this market has been providing a lot of growth, leading companies to increase their exposure. "In the short term it could be challenging but may not impact much in the long term," says analyst Surajit Pal of Prabhudas Lilladher.

To overcome this challenge, various options are today being talked about in industry circles with the intervention of the Indian government. For instance, one of them could be 'Medicine for oil barter arrangement' with Venezuela considering that the Indian government is importing significant amount of oil from Venezuela.

Till that gets sorted out, the only option for the companies is to calibrate their exposure to the region. In fact, in the last earnings call for second quarter of FY16, Dr Reddy's COO Abhijit Mukerjee had said: "In a calibrated way we are selling in the market and if we do not get remittances before that runs out, we will have to slow down or even phase out."