Which pharma cos will gain from the falling rupee? Find out

With nearly half of total revenues coming from exports, the recent sharp deprecation in rupee spells good news the pharma sector. The rupee has depreciated against the US dollar in recent months. It even breached the 54 mark against the US dollar on Thursday.

The total Indian pharmaceutical industry size is about USD 20 billion, with exports accounting for around USD 9 billion of that. Many Indian pharma companies have high exposure to western markets, especially US, for export of active pharmaceutical ingredients [API], formulations and intermediaries. So to that extent the companies will certainly cheer this rupee decline, say some analysts.

"The rupee depreciation will be positive for pharma companies. The full impact of this will be seen in the margins in the third quarter, which should get a boost," Hitesh Mahida, healthcare analyst at PUG Securities, told moneycontrol.com.

Sun Pharma , for instance, has a zero hedging policy and thus stands to benefit significantly, he says.

Exports account for around 70% for companies likeDr Reddy's , Aurobindo Pharma , Dishman Pharmaand Ranbaxy Laboratories . So as rupee depreciates, revenue will appreciate. Others likeDivi's Lab and Cipla too stand to gain.

However, not all companies will be able to digest this depreciation in rupee completely. Mahida points out that Ranbaxy has USD 700 million worth of forward contracts and so stands to loose to an extent.

Aurobindo too has USD 600 million in forex loans. So even as rupee depreciation will boost its revenue by 10% in the second half of this fiscal, impact on profit will be limited to 3%, according to a report by Deepak Malik and Ashish Thavkar of Emkay Global Financial Services.

"Divi's to benefit the most with 37% upside in earnings in the second half and 21% in FY12, followed by Dr. Reddy's, Cipla and Sun Pharma, which will see upside of 16%, 15% and 13% in the second half and 9%, 8% and 6% in FY12, respectively," the Emkay analysts said.

However, there will be limited or no benefits for companies like Cadila Healthcare , Glenmark andJubilant Life Sciences , since they have foreign exchange loans and that will increase their liabilities, the analysts say.

Emkay has raised full year earnings per share estimates for Divi's Lab by 21%, Dr Reddy's 9% and Cipla by 8% among others.

Pharma stocks have outperformed the broader market over the past several months on the back of the rupee depreciation and several companies announcing FDA approvals and drug launches in the US.

The CNX Pharma index is up about 1% in the last three months, while the Nifty index is down 6% over the period. The CNX Pharma index was trading flat over yesterday's close, while NSE Nifty was down about 1% in afternoon trade on Thursday.

Nachiket Kelkar
nachiket.kelkar@network18online.com