China crisis, India scouting for APIs a shot in arm for sick pharma PSU

HAL plans to take up fermentation based APIs too in its next phase of expansion.
The Chinese crisis and India scouting for alternative sources of pharmaceutical bulk drugs has come as a shot in the arm for sick public sector enterprise Hindustan Antibiotics Ltd (HAL). The company is charting a turnaround plan by starting to manufacture the key bulk drugs that the government has identified under a production linked incentive (PLI) scheme.

Speaking to Business Standard, Nirja Saraf, managing director of HAL said, "We are requesting the government to review the decision for strategic sale of HAL."

The PSU is also planning to invest Rs 20 crore (as is also the requirement of the newly announced PLI scheme) to augment its production capacity at its Pune plant to make three key active pharmaceutical ingredients (APIs) -  telmisartan, meropenem and gabapentin. Of these, meropenem is now in high demand also due to the Coronavirus pandemic. For 2020-21, it is targeting a Rs 100 crore turnover and no losses.

Saraf elaborated that the PSU will invest Rs 20 crore from its internal resources. "We had some scrap which we are selling and we have also rented out some of our properties. We will arrange this fund," she claimed. As for initial capacities, it would be 100 tonnes per month (tpa)  for telmisartan and gabapentin and 20 tpa for meropenem. Saraf said that production should start by December.

The government is moving fast on incentivising API production here. India imports around 70 per cent of its API requirement from China now.

Government has already announced a nearly Rs 10,000 crore PLI scheme in March that is aimed at reducing India's dependence on China (for crucial antibiotics, vitamins, anti-diabetic medicines etc). Under the scheme the government will provide Rs 10 crore to a domestic manufacturer who will make 41 products that cover 53 crucial APIs. The units need to be completely backward integrated.

Saraf clarified that HAL would be vertically integrated - it will make the key starting materials (KSMs) and other chemicals required to produce the APIs.

Meanwhile, HAL has also started working on becoming a leaner organisation - it has released 375 people on voluntary retirement scheme (VRS) and it has asked for funds from the government.

"If we get the funds, we will release another 300 people. There would be around 175 people on the payrolls. For 480 people now the wage bill is around Rs 2.1 crore per month and this will come down to less than Rs 1 crore per month," Saraf explained. She further clarified that the PSU has received some funds for VRS, not for working capital or projects. "The VRS funds are a loan that we will repay after sale of land," she added. The severance package is estimated to be to the tune of Rs 145 crore or so.

Saraf did not wish to disclose the PSU's turnover and losses for FY20, saying that those are currently being worked out.
According to sources, HAL's Accumulated losses are around Rs 530 crore. It is due to an old loan that has also interest accumulated on it. It has now requested the Centre to write off at least part of the loan - about Rs 250-300 crore. Part of the loan is from banks which the PSU aims to pay post the land sale happens.

HAL plans to take up fermentation based APIs too in its next phase of expansion.

In December 2016, the government had identified four pharma PSUs — Indian Drugs and Pharmaceuticals (IDPL), Rajasthan Drugs and Pharmaceuticals (RDPL), Hindustan Antibiotics (HAL) and Bengal Chemicals and Pharmaceuticals (BCPL) — for sale of surplus land and eventual closure or strategic sale. While IDPL and RDPL are to be shut down after meeting their liabilities,  HAL and BCPL would be taken up for strategic sale.

Despite the Cabinet nod, the efforts to sell the surplus land did not make any progress. Multiple tenders were floated but the government did not find any buyers. The December 2016 decision was to sell the land to government enitities. In July 2019, this was revised to allow sale to private entities as well.

HAL has around 263 acres of acres. Of this, around 87.7 acres have been identified for sale at Pimpri in the outskirts of Pune. Sources claim that part of this land has been encroached upon and turned into a slum. The proceeds from the land sale would go on to meet the company’s liabilities.

HAL has been making losses since 1972 as its main product penicilin, a bulk drug, is mostly imported from China.

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