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Sun pharma is one of the major Indian brands with regards to pharmaceutical
industry. Everything began in 1983 when Mr. Dilip Shanghvi, who was the
child of a medication discount seller, out of nowhere felt that as opposed to
managing in drugs, for what reason don't we deliver it? He began his own drug
organization with 5 individuals, 5 items and only 1 DREAM – 'TO MAKE
INDIA GREAT AGAIN'.
The acquisition of Ranbaxy in 2014, helped Sun Pharma become the biggest
pharma organization in India, the biggest Indian pharma organization in the US,
and the fourth biggest forte generic organization around the world.
Foreign Exchange Risk refers to the possibility of suffering a loss due to the
changes in exchange rate or the change in the value of currency of different
countries. These risks maybe anticipated or unanticipated. There are three types
of foreign exchange risks that a company can have:
1. Transaction Risk: This is caused because of the acquisition of raw
materials by the organization from another nation or fare of products to
another country. In the event that the organization doesn't get enough
amount to cover the danger, they may even pull out from such
arrangements.
2. Translation Risk: This is incurred by organizations because of having
their subsidiaries in another country. At the point when the subsidiary
organization's budget summaries are changed over into the money of the
country in which the parent organization is arranged, there is an opportunity of
misfortune because of variances in forex.
3. Economic Risk : This happens when an organization's fairly estimated
worth gets affected due to unavoidable openness to currency rate
fluctuations. This danger fixates on macroeconomic conditions that lead
to a misfortune for a business. It is difficult to anticipate these types of
risk and predict the same to the organisation.
1. TRANSACTION RISKS
In the above figure we can see that the company has a borrowing and assets
transactions involving other currencies and the change in the foreign exchange
rate has impacted those transactions. For example: the company had an affect of
Rs. 176.1 thousand in borrowings due to the change in the foreign exchange.
Source: Annual Report
Sun Pharma’s forex risks arise because the company operates in different
countries and deals with currencies like US Dollars, Euros, South African
Rand and Russian Rouble for foreign operations, expenses and revenues. And,
the foreign borrowings is got mostly f rom U.S in U.S Dollars. Thus, a
fluctuation in the rates of these currency rates will affect the company as well.
Here, we can see that the company has managed to reduce the liabilities
significantly when compared to the previous year and has increased the asstes
also to a greater extent.
This data shows the different types of currencies, with which Tata Steel deals
business. Other than INR, it deals in the following currencies: USD, EURO,
RUB, ZAR.Operating with different currencies will increase the company’s
exposure to foreign exchange risk. Every 5% reinforcing in the exchange rate
between the Indian rupee and the individual significant monetary forms for the
previously mentioned monetary resources/liabilities would diminish Group's
benefit and Group's value by roughly Rs.141.1 Million and increment Group's
benefit and Group's value by around Rs.1,990.4 Million separately. A 5%
debilitating of the Indian rupee and the separate significant monetary standards
would prompt an equivalent yet inverse impact.
1. Translation Risk
The company has 69% of sales from international markets. .From the above
chart, we can see that more than 14% of Sun Pharma’s revenue comes from
European countries, 17% from emerging markets and 33% from U.S market,
which means the involvement of foreign currencies is high and therefore the
risk also increases.
2. Economic Risk
Due to the Covid Pandemic, many governments where the company is
delivering have attempted to control pricing of specific items, government-
mandated price controls on pharmaceutical products can be a risk for the
company. The Company has a strong presence in U.S market It contributes to
upto 33% of total sales revenue. But, there is constant price pressure in the U.S
market.
Here, we can see that the company has many transactions in forward
contracts which means that both the parties have agreed to exchange
the cash at a certain date in future at a predetermined price. This can
be the currency, commodity, instrument etc.
Recommendations
1. Huge instability in the forex market, particularly for developing market sector
currencies, may unfavourably affect detailed development of these business
sectors, even though the company has been growing in their local currency.
2.At any point if Sun Pharma feels that the currency they are dealing with can get
too volatile then they should insist on paying that country in Indian Currency
or else USD to prevent themselves from the risk.
3.The company can also take insurance to protect itself from such foreign risk
exposures.
4.The company can also work on better financial forecasting and budgeting.
References
IBEF. (2021, July). Pharmaceutical Exports From India. Retrieved from https://www.ibef.org/:
https://www.ibef.org/exports/pharmaceutical-exports-from-india.aspx
https://www.youtube.com/watch?v=mZyqFm1xMH0
https://www.researchgate.net/publication/338740608_Foreign_Exchange_Exposure_of_the_I
ndian_Pharmaceutical_Industry
https://sunpharma.com/investors-annual-reports-presentations/
https://sunpharma.com/wp-content/uploads/2021/08/SPIL-AR-2020-21-Consolidated-
Financial-.pdf
https://sunpharma.com/wp-content/uploads/2021/08/SPIL-AR-2020-21-MDs-Message-and-
Mgmt-Disc.-Analysis-.pdf
https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Sun_Pharmaceutical_In
dustries_Limited_August_04_2020_RR.html