Indian pharma evinces interest for SCF as efficient and cost-effective way to improve cash flows

Bengaluru, November 17, 2022:

Indian pharma is evincing keen interest in supply chain finance (SCF) with top pharma firms seeing a relatively faster cash conversion cycles in the past. Hence, most prefer managing working capital at an enterprise level.

A few leading players have started looking at supply chain finance as a more efficient and cost-effective way to improve cash flows for their ecosystems. At a global level, we are seeing companies interested in early payment programs as well as export financing, said VinodParmar, Global Head- Sales & Marketing, Vayana Network.

Post-Covid there is a clear shift towards a growing adoption for SCF. It is seen as an optimal solution for suppliers and distributors. Vayana which is into supply chain finance works with 4 of the top 10 pharma companies to enable easier and affordable access to finance, he added.

Globally, pharmaceuticals has been impacted by low sales growth. US growth is in single digits for most of the large pharma players. But Indian pharma has been growing at 10-12% . Now, the average working capital cycle of pharma companies has worsened and stretched by up to 50% which indicates higher inventory levels as well as lower demand, he noted.

With the low growth of investments in the US market, there is a significant focus on India. The Production Linked Incentive (PLI) scheme coupled with China+1 strategy across supply chains is expected to encourage fresh investments in pharma and bolster exports. But in the absence of an increase in R&D spend, the growth could come under a cloud. There has been a cutback capex, which may improve ROCE (return on capital employed) in the short -term but will not bode well for the future, going by the tepid demand.

The pandemic led to a distressed supply chain operation. Given the dependence on imported APIs & chemicals, the disruption on the inputs side was acute. This forced several companies to look at both international and domestic import financing solutions. Vayana, through its partnership with leading Banks and FIs enabled over Rs. 4000 crore of trade financing across the pharma and healthcare sectors. Some of our SME customers were able to shift the production to manufactureing essential medical equipment for Covid. By assessing their past transaction and trade track record, we were able to facilitate quick access to finance against their cashflows, said Parmar.

MSMEs are always short on credit attributed to delayed payments. This is where supply chain finance is seen as an advantage as funds can be accessed against their trade transaction which are generally with a counterparty having better creditworthiness. Vayana allows MSMEs to do this easily by leveraging their trade documentation and transaction data digitally. It covers vendor and dealer financing, GST filing and invoicing, tech-enabled automation of payments and collections, generation of digital financial reports, and stock management.
To the banking sector, Vayana has a full-stack supply chain finance solutions This allows banks to reduce their costs thereby offering cost-effective credit terms to MSMEs.

One of challenges across any supply chain is to on-board and service customers across locations at a minimal cost. Another issue is the availability of digitised records for cross-verification. Here we help MSMEs to become credit ready through its GST applications and provide Good Business Score allowing easy single window view on their performance, said Parmar.Pharmabiz