Financial Daily from THE HINDU group of publications
Wednesday, Oct 15, 2003
Industry & Economy
What ails pharma PSUs?
New Delhi , Oct. 14
A STRANGE paradox emerges if one puts the domestic pharmaceutical industry under the scanner.
Even as the Ranbaxys, Dr Reddy's, Wockhardts and Piramals take confident strides in the global market, back home, the pride of the stately public sector pharma units - Hindustan Antibiotics Ltd (HAL) and Indian Drugs and Pharmaceuticals Ltd (IDPL) - are in the process of completely shutting shop.
Last month saw winding up notices issued by the Board for Industrial and Financial Reconstruction (BIFR) for HAL and IDPL. The country's first drug manufacturing company, HAL was set up in 1954 and had 2,276 employees while IDPL, set up in 1964, has about 8,985 employees. Just between HAL and IDPL, they have a net worth of Rs 15,473 crore, while they have run up an accumulated loss of a whopping Rs 62,991 crore. And this, without taking into account the worth of the human capital. Cold statistics and harsh facts beg the question - what ails the public sector pharma companies, even as private drug firms grow from strength to strength?
"HAL and IDPL were set up as trend-setters to bring in the latest technology and showcase local opportunities for domestic players. However, adequate investments were not made at the appropriate time, and hence, these companies could not keep pace with global developments," observes Mr Vinay Kohli, Secretary, Chemicals and Petrochemicals.
And this is not a lone observation. Bureaucratic circles, representatives of industry and analysts concur on why companies set up with the mandate to "spearhead technology" have in fact become the albatross round the Government's neck.
"These `market leaders,' were never encouraged to market their products. About 80 per cent of sales were to State Governments, with returns not at the same level as private companies would have got. Subsequently, the companies incurred high costs and became sick," points out an industry analyst.
Mr B.K. Raizada, Adviser to Ranbaxy Laboratories Ltd, points out, "The PSUs also had a social obligation to meet. Also, these companies did not invest in research and development and here, the private sector stole a march. The domestic segment grew from an estimated Rs 4,000 crore industry in the 1980s to about Rs 12,000 crore in the 1990s and most of this growth took place in the private sector."
Defenders of PSUs maintain that meeting social obligations such as supplying drugs at subsidised prices for nation-wide health-related programmes - made them unviable. "Becoming fiefdoms for the powers that be " is also cited among other reasons. Against this backdrop, are private companies on the acquisition mode in India and abroad, interested in the country's once shining examples?
"It's not all unhappy stories, a large percentage of the trained personnel in private pharma companies are from PSUs," says Mr Kohli. " Joint sector units - Karnataka Antibiotics and Pharmaceuticals Ltd (KAPL) and Rajasthan Drugs and Pharmaceuticals Ltd (RDPL) are doing well. Bengal Chemicals and Pharmaceuticals Ltd and Uttar Pradesh Drugs and Pharmaceuticals Ltd are on the revival mode," he said.
Analysts point out, "IDPL started becoming irrelevant since 1992. A committee in 2000 had suggested a joint-venture format, where the Government brought in the assets, while the private partner could bring in the technology and finance. But Government did not bite the bait."
Mr Raizada points out, "The Government has initiated a voluntary retirement scheme (VRS) at IDPL. Despite excellent plant locations, IDPL was not allowed to take on contract jobs. HAL did have a tie-up with Gist Brocades (GB) and Wockhardt too had shown interest at one point, but to no avail."
It's 11 years since IDPL went sick. Recently, it was curtains for Smith Stanistreet Pharmaceutical Ltd, a private sick company taken over by the Government in 1972. And a host of other companies are knocking at BIFR's doors. But with bloated workforces and obsolete technology, will they hold interest only in terms of their assets?
"The top-end pharma companies may not be interested in their plants due to too much over-hauling to do. However, mid-size private players could be interested for backward integration," feels Mr Raizada. Small hope for a once illustrious behemoth.
Stories in this Section
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | Home |
Copyright © 2003, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line