Moneycontrol reported in August that some drug makers are working towards producing APIs and key starting materials in house, while others have started qualifying Indian sources for procurement.
Indian drugmakers engaged in the manufacturing of active pharmaceutical ingredients (APIs) and intermediates have started seeing more order inflows and customer enquiries due to the ongoing supply disruption in China, as the world's second-largest economy tightens norms on safety and environment.
An estimated 40 percent of all China factories have been shut down in the last one year at some point in order to be inspected by environmental bureau officials resulting in late and missed orders and increased costs.
In addition to stringent environmental and safety expectations, the rising cost of manpower in China, weaker rupee and higher crude oil prices are also pushing the prices north.
India imports about 80 percent of its APIs or the key active ingredients that go into formulating medicines from China.
Indian drugmakers complained in the first quarter about supply disruption and price hikes by Chinese drug makers, leading to cost escalation and drop in profit margins. Some of the solvents and reagents used as key starting materials for formulating drugs have tripled in the last couple of quarters.
Moneycontrol reported in August that some drug makers are working towards producing APIs and key starting materials in-house, while others have started qualifying Indian sources for procurement.
“We absolutely see more engagement from customers because of the Chinese situation,” said Erez Israeli, Chief Operating Officer and Global Head of Generics of Dr Reddy’s in a recent call with analysts.
“We believe that it will help our PSAI business a lot,” Israeli added.
Revenues from pharmaceuticals services and active ingredients or PSAI as Dr Reddy’s calls it, rose 7 percent to Rs 602.9 crore YoY in Q2FY19, on a sequential basis the sales grew 11 percent. PSAI segment constitutes about 16 percent of Dr Reddy’s revenues.
Dr Reddy’s uses much of its internally-produced APIs for captive consumption, but with changing circumstance, it is now seriously considering to scale up manufacturing to win orders from outside as well.
Another drug maker Divis Laboratories that focuses on APIs and custom synthesis reported a stellar Q2 performance, with net profit jumping 92.3 percent year-on-year to Rs 397.65 crore and revenues increased 44.3 percent to Rs 1,285 crore.
While Divis is tight-lipped on its Q2 numbers, analysts have attributed the strong numbers to weak rupee coupled more business coming in due Chinese supply disruption.
To take advantage of the huge visible business opportunity flowing from China caused by supply disruption and rising costs the company embarked on a Rs 1200 crore fresh brownfield capital expansion at its two units in Visakhapatnam and Hyderabad.The company expects these two expansions to be executed before the end of 2019.