How has the pharma sector in India fared when it comes to attracting foreign direct investments?
The government’s concerted push towards the pharma sector through initiatives such as Make in India, Ayushman Bharat Scheme, National Digital Health Mission etc, has cemented India as a leading global capital market. The total market size of the Indian pharma industry is expected to reach $130 billion by 2030. And with access to large consumer markets, generation of new employment opportunities, increase in research and development and rise in net foreign exchange earnings, the Indian, as well as foreign businesses, are betting big on the sector. The cost of manufacturing in India is approximately 33 per cent lower than that of the US making it a suitable marketplace for investors to invest more in the country. The increasing FDI inflows is a reflection of the firm belief by global investors that India will lead as one of the major growth engines coupled with a steady spate of market reforms. The pharma sector is well poised and is attracting FDI and exploiting the many opportunities that COVID-19 has created.
Can you give a ranking across industries?
According to me, these are industries that are currently “hot-bed” for investments.
1. Pharma
2. Hospitality
3. Construction development
4. Automobiles
5. Energy
What role have policies like Make in India etc played when it comes to attracting foreign capital?
The dedicated efforts from the government’s end through initiatives like Make in India has definitely spurred up foreign investment. The Government has taken many steps to reduce costs and bring down healthcare expenses. The Government of India unveiled ‘Pharma Vision 2020’ to make India a global leader in end-to-end drug manufacture. Approval time for new facilities has been reduced to boost investment. The recent initiative announced by the government regarding production linked incentive (PLI) scheme for the pharma industry worth Rs 15,000 crore ($2.04 billion) will also promote domestic manufacturing of critical key starting materials (KSM), drug intermediates, and active pharmaceutical ingredients (APIs) making India a leading supplier. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharma companies.
Has there been any change in FDI sentiment post the COVID-19 pandemic, given that pharma and vaccine companies in India have ramped up supply chains from medicines to vaccines to PPEs for exports after satisfying national needs?
The crisis put forth by the COVID-19 pandemic has definitely changed the FDI sentiment. The pharma sector has gained much of the global attention, with many global players opting to move their operations out of China, and therefore India with its growing market and economical workforce, offers to be a strong alternative contender. India has a distinct advantage in this area and the Indian government is also pushing for reforms and rolling out the red carpet for businesses looking to invest in India.
You founded FDI India in 2015. How many deals/worth of FDI have been facilitated in the past six years?
FDI India is enabling financial strength to its clients by handholding them in the investment lifecycle right from pre-investment to after-care. Through our platform, we are helping Indian businesses to obtain loans in a seamless and hassle-free manner and also an easy way to generate inquiries and get investment from foreign investors. Till now, we have facilitated 10-12 deals in pharma companies which include companies including medicine manufacturing, API device manufacturing, medical devices etc.
Which countries are part of FDI India’s potential investor network?
Our potential investor network is spread across 15 countries which includes Singapore, Malaysia, Australia, the UK, the US, Germany, Italy, Canada, and Ireland among others.
What is the average ticket size of investment in the pharma sector that FDI India has facilitated?
We have enabled pharma companies to obtain soft loans with a minimum ticket size of Rs 50 crores.
I can understand that you cannot share confidential information on your past, present or potential deals but can you give some illustrative examples to demonstrate the impact of the recipient (the company receiving the FDI) and return on investment to the investor?
We have been working with companies in the pharma sector since our inception. The experience has been quite enriching and successful. We are working with a company in medicine manufacturing since four years now and they have seen significant year-on-year growth. The deal has been a remarkable success for the investor also so much that he is been investing in companies in the pharma sector since then, the reason being the growing pharma market, the liberalised government policies, ease of doing etc.
Another such example is the company in API manufacturing which has been associated with us for two years now and has also witnessed a double-digit revenue growth and the return on investment for the foreign investor has also increased 2X since the government’s announcement of API manufacturing in India to be done on a large scale. The market potential has definitely impacted positively on the recipient and an induced return on investment for the investor.
India’s ease of doing business has improved but is still not optimum. How has this impacted FDI flows and how does it impact the services provided by firms like FDI India that will have to overcome investor hesitancy?
Measures taken by the government on the fronts of FDI policy reforms and ease of doing business has resulted in increased FDI inflows. It has helped companies like FDI India in overcoming investor hesitancy. With our array of services including financial planning and assistance, connecting to the right investors and project planning, we are enabling financial strength to our clients through quality and conflict-free investments. This also involves a rigorous process right from the screening of the loan applicants to helping them build their portfolios and effectively present credentials to potential investors in guiding them in their financial and project plans. Thus, the effort from the government’s side for ease of doing business has definitely helped us simplify the complex investment scenario.
Is there a need for more innovative financing options for pharma companies? And if so, why?
Yes, there has been a significant increase in the need for more innovative financing options for pharma companies. Longer-term loans will help pharma firms set up high-quality facilities (including for R&D) that meet global standards. The loans can also be used to help Indian pharma companies (including through joint ventures overseas) acquire companies, tangible assets and brands abroad. Attracting foreign investment is a key mitigator to these concerns but also a long-term accelerant to growth. We see a lot of promise in India, specifically with its innovative startups, the potential of the Indian digital economy and its growing infrastructure.
What are the options? And the risks? For both pharma companies as well as investors? How can these risks be minimised?
The primary sources of financing are loans from commercial banks and/or microfinance institutions or external financing sources, such as angel, independent venture capital (IVC), and corporate venture capital (CVC). Another good option to raise capital is through foreign debt by way of foreign investments. The need for funding creates a financial risk to both the pharma companies and to any investors or stakeholders invested in the company. Risk minimisation can be through analysing risks associated with long-term investments by developing a robust quantitative view of which risks matter most, organising around lines of defence to strengthen oversight and minimise duplication, establishing risk appetite and prioritising where to focus and taking advantage of big data and advanced analytics.