Pharmaceutical industry’s annual profit slides 18pc to Rs10.7bln

KARACHI: Pharmaceutical industry reported a sharp 18 percent fall in its profit to Rs10.7 billion during the financial year ended September, as rupee depreciation eroded its profitability margins, a brokerage reported on Monday.

The pharmaceutical companies earned Rs13.1 billion during the previous financial year.

Analyst Ahmed Lakhani at JS Global said the industry’s net margins plunged to 10.3 percent in the October-September period from 14 percent a year earlier despite a 12 percent increase in net revenues.

Lakhani added that the downward profitability was due to rupee devaluation.

“Rupee has lost more than a quarter of its value against the dollar since the first devaluation in 2017, as officials weaken the currency to tame a ballooning current deficit that threatens to trigger a balance of payments crisis,” Reuters reported. “But, devaluations stoked inflation to a four-year high.”

The central bank has pushed up the policy rates by cumulative 425 basis points to 10 percent since January. The current rate is four-year high.

Since a product-wise breakup is not available in the companies’ disclosures, a study of the director’s report of each company revealed that the key contributor to reduced profitability was the negative impact of rupee depreciation.

“Though the sector has been allowed price increases in line with the annual CPI (consumer price index) inflation increase, CPI for 5MFY19 averages 6 percent compared to the 15 percent depreciation in the rupee, underpinning the industry’s structural concerns,” Lakhani added.

The pharmaceutical industry has lost 22 percent of its market value since December 7, 2017, when the rupee devaluation began, underperforming the KSE-100 index by 21 percent.

The Pakistan Pharmaceutical Manufacturers’ Association (PPMA) warned of a 40 percent increase in drug prices if new pricing policy was not announced.

“Manufacturing cost of medicines in the country has been increased up to 60 percent given the record devaluation of rupee and increase in duties and taxes on the industry,” Zahid Saeed, central chairman of PPMA told a news conference last week.

The association also proposed linking of medicine prices with the exchange rate, considering its massive impact on the sector’s survival. It said 250 medicines have vanished from the country due to unviable pricing mechanism.

“The sector’s profitability and performance might remain under pressure in the short term,” Lakhani added.

“Any measures taken to boost the sector’s exports could also help reduce the negative impact of rupee devaluation on the sector’s earnings.”