China Plus One strategy augurs well for Indian pharma as industry propels new capex expansion

Bengaluru, March 3, 2023 :

China Plus One strategy augurs well for Indian pharma as industry propels new capex expansion. The sector has only gained from the China+1 factor, said S Venkat, founder, Practus, a global management consulting practice.
 
The China Plus One is a business strategy to avoid investing only in the dragon land and diversify business into other countries. “There is optimism among our clients as several companies are chalking out new capex expansion plans,” he added.
 
In general, supply chains have settled down after Covid. Branded players have shown better resilience in performance than their peers in the market.  For companies with high proportion of revenue in exports, there has been some relief on the pricing front, on account of the Indian rupee depreciation against the US dollar, Venkat told Pharmabiz.
 
From a global perspective, the pharma sector has seen muted growth in the last 12 months, mainly on account of a high Covid base year effect. Heighted global competition and regulatory interventions are significant challenges.  However, higher incidence of lifestyle disorders, improved longevity, improving insurance penetration offer significant opportunities, he noted.
 
Moreover the US generics business has seen significant competition and hence severe pricing pressures prevail. Companies offering speciality and complex generics have done relatively better. For Indian exporters to the US, significant uncertainty exists with risks of US FDA observation as post-Covid standards are getting tough. Yet the outlook for CDMO (contract development manufacturing organisations) continue to be bright. But pricing and margins are challenges. For relatively profitable companies, capital allocation decisions continue to be key, including decisions around which product lines and geographies to invest in, said Venkat.
 
We believe that pharma companies should focus on ‘controlling the controllables’.  For revenue optimisation, companies were assisted through sales force automation and performance measurement.  In cost reduction, Practus has implemented reverse auctioning to reduce purchase and transportation costs. Our accurate standard costing methodologies, has assisted with tax structuring for income tax and GST. We implemented robotic process automation to automate repetitive, manual tasks. Further, to help pharma companies improve fund-flow, we fine- tuned Material Resource Planning to reduce inventory levels and automate monitoring, reconciliations and follow up of outstanding dues, he said.
 
Practus works with boards, CEOs and CFOs of pharma companies for ‘hands-on’ execution. For instance, in a working capital optimisation project, Practus would stay involved with the pharma company till such time the targeted fund-flow savings are realised in the company’s bank account. With our proprietary RoI (Return on Investment) model, clients get anywhere between 3x-12x returns on the transformation spends they invest with Practus, within 12 months of project commencement. Our intent is to changing the consulting paradigm in India and overseas, said Venkat.  Pharmabiz