This insightful interview with Amit Sheth, the promoter of Orbit Lifesciences, is a rare example of a promoter talking rationally and articulately about the ongoing economic slowdown. [Most promoters’ interviews regarding the slowdown span the narrow spectrum from begging the Government for help to thanking the Government for help!]
First off, BloombergQuint gives you a sense of the scale of the problem facing smaller pharma companies: “Second-generation entrepreneur Amit Sheth followed his father into India’s pharma industry, nurturing a near 40-year-old business to a point where it now deals in finished formulations, active pharmaceutical ingredients and their import and export to 50 countries around the world. The company even manufactures for some of India’s bigger drugmakers. But Sheth is now in a quandary rarely experienced by the industry.”
In Sheth’s own words: “Pharma is the only sector in the world which has never, ever de-grown globally, which is primarily the essential nature of the goods. This is the first time ever, in the domestic pharma industry, that as the contract manufacturer we are facing de-growth of the entire assembly belt.”
So what are the problems facing a small pharma company like Orbit Lifesciences? Firstly, liquidity in the system is jammed and fund flow to the sector has been crunched: ““Jammed liquidity” and stifling regulatory measures are making it difficult for domestic firms to innovate, contribute and compete in the developed markets, Sheth said…According to Sheth, lack of funds also limits companies like Orbit Lifesciences from realising their growth potential. India’s bid to clean up its public sector banks, coupled with a string of defaults in some non-banking financial companies, has left small and medium enterprises starving for cash. While Sheth supports the need to clean up the country’s financial system, he said small players like his are going to suffer in the short term. Barring one or two NBFCs, none of the institutions are lending money, Sheth said… “Our ability to grow the business within a limited amount of capital is becoming less and less, day by day… Right now, the situation is such that in spite of having a good opportunity to grow, globally and domestically, due to the dearth of capital I think a lot of SMEs are impacted,” he said. This puts the onus on the government to ease the fund crunch, Sheth said, adding the country is far behind developed markets when it comes to credit cost. “Naturally, with this burden of interest, it is not allowing us to do business and expand business because we constantly have the pressure to pay back the interest.”
The second challenge is the growing burden of regulatory compliance vis a vis a battery of regulators, in India and abroad. Sheth says, “The insurance regulatory body, IRDAI, is getting stricter by the day. Pharmaceuticals, the DCGI (Drug Controller General of India), the FDA are getting stricter by the day…at times we do feel that they are so overwhelming, and at times you feel that it is overpowering you…and your growth is getting stopped and it is getting curtailed due to the over-emphasis of the regulations…For example, if I bring in innovative products from outside of India which is not there, we need to get in the registration. Earlier it used to take six to eight months. Now it is taking us 12-18 months. Probably, 24 months…“Is there any one single molecule in the pharma industry which is an innovation by India? No. Because there are no incentives for research and development in the pharma industry, which is sad because today India has the best skill labour, best technical brains, best technology in pharmaceuticals and ideally better infrastructure in pharmaceuticals for the global play than any other country in thein the world. Despite that, we are not able to come up with a single molecule which is innovation or an original research product.”
Marcellus’ own take on the ongoing economic slowdown can be found here: https://marcellus.in/blogs/marcellus-dissecting-the-economic-slowdown-in-india/
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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