| Cabinet okays pharma pricing policy
Accepts GoM's final recommendations without changes, say sources | |
BS REPORTER
New Delhi, 22 November The Cabinet today endorsed the recommendations of a Group of Ministers' ( GoM) on a revised National Pharmaceutical Pricing Policy, giving shape to a long- pending issue. The government did not give out details of the decision. According to sources, the Cabinet has imposed a cap on prices of 348 essential medicines at the arithmetic average of prices of all drugs in a particular segment with more than one per cent market share, in line with the GoM's new recommendations. The GoM, headed by Agriculture Minister Sharad Pawar, convened a final meeting yesterday, with Finance Minister P Chidambaram as special invitee. This was to address concerns raised by the latter's ministry on the GoM's earlier proposal. This earlier proposal had been referred back by the cabinet secretariat after the finance ministry's objection to the market- based pricing mechanism. At yesterday's meet, the GoM made three key changes to its earlier proposal, to bring Chidambaram on board and get the policy to the cabinet for approval. There was aSupreme Court deadline of November 27 hanging over the government's head; it was supposed to announce its policy before the date. Earlier, the GoMhad recommended a price cap based on the weighted average of all drugs, which would have reflected the price of expensive drugs with a better market share more than those with a lower share. The GoM's suggestions also included a feature that any company changing the composition of the 348 essential medicines by adding a new ingredient to the formulation would come under price control and would have to seek permission from the pricing authority. The idea is to prevent companies from circumventing price control by adding new ingredients to essential medicines. The earlier recommendations of the GoM included only the 348 formulations under price control, while companies were free to price combinations of these drugs. Another major recommendation of the GoMis that the price regulator would review prices of drugs periodically, instead of five years as was earlier suggested by the ministerial panel. Sources said the Cabinet approved theproposedpolicywithoutanymore changes. Though the new policy is expected to lower the prices of various expensive drugs, there is also immense scope for a higher price of many low- cost drugs. The new recommendations have found a mixed reception from the industry. While some companies are relieved the government has not accepted the finance ministry's recommendations in favour of the existing cost- plus mechanism for capping prices, which was also in line with a previous SC observation, others said the simple average would impact the industry's revenues. "Half of the industry's profit is wiped out because of the simple average formula. There are two basic objectives of the policy — access and availability. While the government has achieved access through this policy, Iam not sure whether all medicines would be available with this kind of policy in place," said D G Shah, secretary general, Indian Pharmaceutical Alliance, representing all top domestic pharmaceutical companies, including Ranbaxy and Cipla, which are seen to be highly impacted. However, Lupin India's group president, Shakti Chakraborty, said, "It is a good thing that the government has chosen to adopt a marketbased mechanism, thus protecting the industry interest to a large extent and also ensuring that drugs reach patients in a cost- effective manner." So far, the government was regulating prices of medicines based on a cost- plus method, taking into account the cost of bulk drugs. Under this, the prices of 74 bulk drugs were capped and any medicine formulation containing one or more of these or ingredients would fall under price control. The companies were required to seek price approval for any such drug from the National Pharmaceutical Pricing Authority. For all other medicines, drug makers were allowed to raise prices by up to 10 per cent annually; for any rise beyond this, they were required to seek permission from the regulator. The new policy is a deviation from the existing one. The new pricing mechanism is market- based and the ceiling price will reflect the prices determined by various companies for their different brands. HEADY FORMULA |₹ 65,000 cr is the estimated value of domestic pharma industry |74 bulk drugs and formulations containing one or more of these regulated by govt so far |30% of pharma market would be under price control now, against 17% earlier |New mechanism: Prices will be capped at arithmetic average of all formulations with more than 1% market share |GoM's earlier recommendation: Price cap at weighted average of all drugs with more than 1% market share |Revenue impact: Price regulation based on simple average would mean around 20% revenue loss for industry, against 18% estimated with price cap based on weighted average |Most hit: GSK Pharma, Cipla, Ranbaxy, Abbott, Cadila, Pfizer |Least hit: Dr Reddy's Labs, Torrent, Lupin, Glenmark 3key things in the policy |Prices of 348 essential medicines to be capped at average of all drugs with more than 1% market share |Any company tweaking composition of any of these drugs will have to seek a separate price approval from the regulator or empowered committee |Prices will be reviewed periodically Cabinet has imposed a cap on prices of 348 essential medicines at the arithmetic average of prices of all drugs in a particular segment with more than one percent market share | | Corporate India springs into action to pare promoter stakes | |
SAMIE MODAK
Mumbai, 22 November A slew of companies are rushing to sell their stakes over the next few weeks before the holiday season in Western countries start mid- December. Over half a dozen companies, including Hindustan Copper and Blue Dart, which will sell shares through the auction route, are looking to offload stakes, with some attempting to cut promoter stakes to comply with the regulator's minimum public shareholding requirement. Since October, six offers for sale ( OFS) have hit the market, with the latest being multinational Disa India. OFS is a new share- sale route introduced this year to help companies bring down promoter holding. "Quite a few deals will hit in the market in the next few weeks. Most of these will look to close before December 15," said V Jayasankar, executive director and head of equity capital market at Kotak Investment Banking. Companies and bankers are pushing to sell shares before December 15 because fund managers in Western countries do not work for two- to- three weeks on the eve of Christmas and New Year. Also, promoters are sceptical to wait as there is uncertainty on how the markets would behave after January 1, when the so- called ' fiscal cliff' in the US takes effect. The ' fiscal cliff' may result in higher taxes and spending cuts in that nation. Turn to TSI, Page 3 > OFS ISSUES SINCE OCTOBER Amt raised Company Date (₹ cr) Disa India Nov 20 143 DB Corp Nov 9 245 Xchanging Solutions Oct 23 77 Pioneer Distilleries Oct 23 0.2 Fresenius Kabi Oct 12 115 Adani Power Oct 8 193 Hindustan Copper* Nov 23 574** Blue Dart Express* Nov 23 246** *Forthcoming; ** Minimum issue size at floor priceSource: BSE Aims for share- sale before US holiday season, fiscal cliff' kick in | |
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stakes " There could be a lot of uncertainty at the time of the Budget. Most companies dont want to take that risk. Therefore, there are only two windows available for companies –one is till December 15 and the other is after January 10 till the Budget," said Kaustubh Kulkarni, managing director, investment banking, JP Morgan.
Currently, there are over 110 private companies which are yet to comply with the 25 per cent public shareholding requirement before June 2013. Bankers said that promoters, who were reluctant earlier, are now willing to sell their stake as valuations are much better compared to last year levels. The benchmark BSE Sensex has risen nearly 20 per cent since the start of this year. "From companies' point of view, valuations levels are reasonably better than what they were at the beginning of the year as share prices have gone up. From investors' perspective, they are slightly more willing to part with their money as the markets have done well," said Kulkarni. | | | PSU divestment move: Government plays it safe | |
PALAK SHAH
Mumbai, 22 November After the fiasco in March this year over the share sale in Oil and Natural Gas Corporation ( ONGC), the government has softened its stand over the pricing. The floor price for sale of its four per cent stake in staterun Hindustan Copper Ltd (HCL) was set at ₹ 155 a share today. This is a 41.8 per cent discount to the current share price of ₹ 266 on the stock exchanges, the steepest discount the government has ever offered for selling its stake in any company. Experts say this might ensure the issue goes through and creates a ' feel good factor' in the stock market, too. The ONGC offer for sale had to be rescued by governmentowned Life Insurance Corporation, as other institutional players stayed away due to the high floor price. The government had set this at a three per cent premium to the market price. Also, the ONGC issue size was around ₹ 12,000 crore; the government intends to only raise ₹ 574 crore by selling HCL stake at the floor price. The share price of HCL rose 16 per cent in intra- day trade today, as the markets were aware the government would announce an auction floor price for the share sale. "The floor price set by the government is a fair value price. The share price has seen asharp rally in the past few months, as the company has very little floating stock — 0.41 per cent — in the market and a large proportion of that, too, is controlled by a few players," said independent equity advisor SP Tulsian. HCL has issued a little over 925.2 million shares, of which only 3.7 million are traded in the market. The government owns 99.59 per cent in the company and the rest is divided between seven institutional agencies, two trusts, 842 corporate bodies, 27,772 retail investors and 300 non- residential indians. This is not the first time the government has said it would dilute stake in HCL. The share price had seen a massive rise between December 2011 and February 2012, when the government had announced it would sell stake. However, nothing materialised and the price fell. The share had risen from a 52- week low of ₹ 146 on December 20 to touch a high of ₹ 320 on February 2. Last week, it was traded at ₹ 222 and has been rising in anticipation of the government announcement. Turn to TSI, Page 3 > To avoid repeat of ONGC- type fiasco, sets Hindustan Copper share auction floor price at 41% discount to market price CAUTIOUS MOVE Hindustan Copper share price on BSE in ₹ 320 270 220 170 120 Nov 22, 2012 Dec 1, 2011 191.50 266.30 | | FIPBroadblockforIKEAproducts | |
NIVEDITA MOOKERJI
New Delhi, 22 November In what could spoil the singlebrand retail party, the Foreign Investment Promotion Board (FIPB) is learnt to have struck off as many as 18 product categories out of the 30 proposed by € 25- billion Swedish furniture major IKEA. Coinciding with the din in Parliament over the government permitting 51 per cent foreign direct investment in multibrand retail, single- brand retail would run into a rough patch too, if IKEA reviews its India entry plans over the fresh barriers thrown up by the FIPB. It is believed many singlebrand retail chains, including some from Europe, have been waiting for the green signal to the big- ticket IKEA proposal as atest case, before they send in their applications. Industry sources pointed out that IKEA, which operates over 300 stores across around 40 countries, typically goes out to foreign markets with its full range of products and categories, and with so many categories deleted from its list, the chain might rethink on whether to enter the India market or not. But replying to Business Standard, IKEA said, " We are now internally reviewing the details of the latest decision from FIPB." The company said it would be in a position to comment on its India stand " when we are more clear about what it means for us in the coming days". The IKEA proposal was taken up by FIPB, a key wing in the finance ministry, for vetting foreign investment proposals, on Thursday. Officials said the IKEA intent to invest € 1.5 billion in India to set up stores across the country was recommended for clearance by the FIPB, but with conditions attached. Even as the earlier condition of 30 per cent sourcing from small and medium enterprises was removed from the single brand retail FDI policy following IKEA's stand that it was not feasible to follow, the new set of conditions recommended by FIPB may upset its plans. The category of items that FIPB has taken out of the list of what all IKEA can do in India include home and office use products, solutions, fittings, furnishings and accessories including stationery; textile products including apparels and fabrics; toys, books and gadgets; consumer electronics and accessories; decorative products; leather products; storage and sorting products and accessories; cleaning products and accessories; children products and accessories; safetyrelated products; travel- related products; cosmetics and accessories; gift articles and accessories; lifestyle products and accessories; beach products and accessories; recycling solutions and products; food and beverages to be served at the IKEA restaurants and café to customers in the IKEA retail stores; products under development by IKEA internationally as well as those developed especially for the Indian market. IKEA has been permitted to sell furniture products, which is the chain's core business, in India. Also, knockeddown furniture and accessories related to furniture would be allowed for sale. Other things that it can showcase and sell in India include cushions, pillows, rugs, mattresses, quilts, curtains, window shades, blinds, electrical and kitchen utensils, cooking range equipment, bathroom fixtures, tableware, mirror, frames, pictures, candles, and glassware products. Besides the other restrictions, FIPB has also recommended that no activities falling within the purview of NBFC ( non- banking financial companies) activities will be conducted by the applicant. That would imply that IKEA cannot offer any finance scheme to its customers. A government official argued that " concessions and adjustments are bound to be made on both sides." IKEA may decide to tailor its outlets accordingly, he added. Restriction on a few non- core products that may not contribute much to its bottom line may not pose a hurdle, he added. Eighteen of 30 product categories proposed by Swedish furniture major struck off WHAT'S OUT Some of the products rejected by FIPB |Home and office use products, solutions, fittings, furnishings and accessories including stationery |Textile products including apparels and fabrics |Consumer electronics and accessories |Cleaning products and accessories |Leather products |Storage and sorting products and accessories |Children's products and accessories |Safety- related products |Travel- related products |Cosmetics and accessories |Recycling solutions and products |Lifestyle products and accessories |Decorative products |Gift articles and accessories |Food and beverages to be served at the IKEA restaurants and café to customers in the IKEA retail stores |Beach products and accessories | | | | | | | | | | |
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