Indore Pharma Cluster
MARCH 2015
Indore Pharma Cluster
Undertaken by
Intellectual Capital Advisory Services Private Limited, Hyderabad
Study Report by:
Submitted by: Intellectual Capital Advisory Services Private Limited, Hyderabad
Submitted to:
International Consultancy & Coordination (ICC), SIDBI
Study Report on Credit Gap Mapping
of Indore Pharma Cluster
Contents 1. Executive Summary...1 Overview 1 Demand 2 Supply 3 Gap Analysis 3
2. Background and context...4
2.1 Area profile: 4 2.2 Indore Industries profile: 5 2.3 Pharmaceutical industry: 5 2.4 Indore Pharmaceutical cluster profile: 6 2.5 Development of MSME Clusters 6 2.6 MSME Credit Challenges 7
3. Approach and Methodology... 8
3.1 Cluster Definition 8 3.2 Objectives of the study 8 3.3 Scope: 8 3.4 Sample size & Selection 8 3.5 Data collection tools: 9
4. Cluster credit demand...10
4.1 Cluster Technical profile 10 4.1.1 Investment size 10 4.1.2 Ownership status 10 4.1.3 Customer profile 11 4.1.4 Business turnover 12 4.1.5 Payment terms 13 4.2 Cluster credit profile 14 4.2.1 Loan history 14 4.2.2 Working capital related 14 4.2.3 New Project/Capacity Expansion 14 4.2.4 Purpose of Loan 14 4.2.5 Sources of Funds 15 4.2.6 Type of collateral 17 4.2.7 Problem faced in availing loan 17 4.2.8 Term related 17 4.2.9 Future Loan requirement 18 4.2.10 Slab wise credit demand 19 4.2.11 Preference on loan terms 19 4.2.12 Process related 21 4.2.13 Other Problems 21 4.2.14 Awareness 21
4.4 Cluster credit demand estimates 22
5. Supply side analysis...24
5.1 Access to finance status 24 5.2 Credit size: 25 5.3 Credit purpose: 25 5.4 Overview of Madhya Pradesh MSME finance 25 5.5 Overview of Indore MSME advances 26 5.6 Pharmaceutical cluster advances 26 5.7 Cluster credit supply scenario 27
6. Gap Analysis... 29 7. Recommendations and Action Plan ... 30 8. Stakeholder Workshop Feedback Report ... 32
Annexure 1: List of Medium and Large industries in Pharmaceutical Sector in Indore 33 Annexure 2: List of Organisations/ People interviewed during Primary Survey of Pharmaceutical Cluster in Indore 34 Annexure 3: List of MSME interviewed during Primary Survey of Pharmaceutical Cluster in Indore 35
List of tables Table No.
1 Indore pharmaceutical cluster break-up by year of establishment
2 Performances of SSI / MSME Units, Employment, Investments and Gross Output
3 Indore MSME details
4 Number of pharmaceutical MSMEs up to March’12 5 Indore sample geography coverage
6 Interviewed supply stakeholders 7 Pharmaceutical MSME cluster coverage 8 MSMEs’ preferences on loan terms 9 Demand Side Calculations
10 Madhya Pradesh MSME Growth Pattern 11 Indore MSME Growth Pattern
12 Supply Side Calculations
13 Gap Analysis
14 List of Large and Medium Pharmaceutical industries in Indore 15 List of Organizations and People interviewed in Primary Survey 16 List of MSME interviewed
List of Figures
Figure No.
1 Sample distribution by Investment Size 2 Ownership structure of cluster sample 3 Customer profile of cluster sample 4 Average turnover of cluster 5 Payment terms of cluster 6 Loan purpose of cluster 7 Cluster lenders’ profile
8 Lenders’ outreach across sample M-S-M enterprises
9 Loan accessibility based on ownership structure of sample MSMEs 10 Types of collateral used by cluster in past
11 Problems reported by cluster 12 Future loan requirement of cluster 13 Interest rates preferred bycluster 14 Clusters forecasted growth and turnover
Abbreviations
MP-AKVN M.P. Audhyogik Kendra Vikas Nigam BDS Business Development Services CAGR Cumulative Annual Growth Rate
CGTMSE Credit Guarantee Fund Trust for Micro and Small Enterprises DIC District Industries Centre
DSCR Debt Service Coverage Ratio DLRC District Level Review Committee GDP Gross Domestic product GMP Good Manufacturing Practice GSDP Gross State Domestic Product GDDP Gross District Domestic product IFC International Finance Corporation IRR Internal Rate of Return
MPLUN Madhya Pradesh Laghu Udyog Nigam MSME Micro Small and Medium Enterprises
MSME -DI Micro Small and Medium Enterprises – Development Institute MSE Micro and Small Enterprises
MSE-CDP Micro & Small Enterprises - Cluster Development Program NDDP Net District Domestic Product
PSL Priority Sector Lending RBI Reserve Bank of India SBI State Bank of India SEZ Special Economic Zone
SICDP Small Industry Cluster Development Program SSI Small Scale Industries
SIDBI Small Industries Development Bank of India
YoY Year on Year
1. Executive Summary
Overview
Indore pharmaceutical cluster one of the oldest clusters in India with nearly hundred years of track record is on declining phase in terms of number of units. With the advent of adherence to WHO prescribed good manufacturing practice (GMP), the micro enterprises are getting extinct. Further, added to these are competition from multi-nationals and entry of big players, the MSME players are finding it difficult to operate and survive. Another significant transition is companies with loanee licensing are in increasing trend, as they are finding it difficult to investment in plant and machinery.
Table: 1 Indore pharmaceutical cluster break-up by year of establishment
Year of Establishment Percentage
before 1980 10%
1980-1990 15%
1990-2000 30%
After 2000 45%
Indore Pharmaceutical cluster is dominated by formulation segment with 95%. Very few enterprises are in the bulk drugs and none in R&D category. This highlights the homogeneous nature of the cluster with regard to its business nature/product.
Indore pharmaceutical companies constitute 0.79 percent of the total registered MSME, which is much less than the national average of 3.26 percent. This is relatively small cluster with over 45 companies mostly in small category.
On the contrary to the general industry pattern on MSME ownership status, where nearly 94.41%1 are in the form of proprietorship, Indore’s 40 percent of the Pharmaceutical cluster is represented by private limited type followed by partnership firm. This trend is indicative of cluster being more structured.It is interesting to observe that none of the companies are headed by women. There is complete gender imbalance with regard to Indore Pharmaceutical cluster.
Government of Madhya Pradesh is investing in Special Economic Zones (SEZ), outside Indore in adjoining Dhar District. Thus, direct investment in Indore district is not significant.
The study adopted combination of qualitative and quantitative methodology, individual interviews with MSME promoters were carried out to get not only get quantitative information but also qualitative insights on the cluster. Further, supply side stakeholders’ namely financial institutions, MSME-DI and Industry association leaders were also interviewed. Comprehensive secondary data on the cluster and district are analyzed to understand the demand-supply gap for the cluster.
As there is data inconsistency with regard to actual number of pharmaceutical MSME in Indore cluster, the team reviewed district industry center (DIC) data, MSME-DI data,and Pharmaceutical association data and finally concluded that there are around 45 Pharmaceutical enterprises functional in Indore. Further, the study geographical scope is limited to Indore district as the DIC data and association data does not include Dhar district pharmaceutical enterprises. Of the total MSME populations, around 40 were contacted of which 25 enterprises responded and are interviewed; this sample size is extrapolated at the cluster level to draw conclusions by adopting SIDBI proposed methodology.
Demand
The enterprises are measured on the their Plant and Machinery investment metrics, where it is found that majority of the cluster enterprises i.e. 80 percent are in small category, while 15 percent are micro, and remaining 5 percent are medium scale companies. Indore Pharmaceutical cluster gross debt demand stand out to be Rs. 7976 Lakhs, projected. The study reveals that nearly 21percent of this demand is for term loan, signifying the scope for growth.An analysis on growth in fixed capital for Madhya Pradesh pharmaceutical sector show an average growth rate of fixed capital is around 31.29percent, which is used to project term loan
projections.
It is interesting to note that the demand for working capital is still found,in spite of sufficient current level of availability. Most of the respondents state that the demand for working capital will increase going forward, as they are planning to increase their capacity in near to medium term.
Theentire demand is coming from small category, micro category enterprises are did not evince any growth ambitious as they find it difficult to compete in the market with current level of margins and strict GMP norms adherence.
It can be assumed that if projected term loan requirements are met, some of the current small enterprises will move into medium category as their gross investment in Plant and Machinery will go up.
With regard to their satisfaction with the current access and availability of capital, the respondents are reasonably happy, however, they strongly feel that there is huge scope for improvement in terms of reducing process related aspects and collaterals issues. To conclude the demand side, the projected demand can be addressed,rather will be realized only when financial institutions consider collateral free loans or utilizing CGTMS, as most of the enterprise’s current collateral capacity is exhausted and they are not in a position to offer any additional collateral.
Supply
With over more 44 banks operating with more than 360 urban/semi urban branches in Indore, financial inclusion in general and pharmaceutical sector are high. The key issue in Indore MSME finance is not breadth of the finance, but depth of it. It can be noticed that average loan size among sample enterprises is ` 153.3 Lakhs and ` 41.6 Lakhs for working capital and term loan, respectively. Bank advances to MSMEs in Madhya Pradesh are growing very rapidly with over 30 percent year on year growth. The role of Non-Banking finance companies in MSME financing seems to be insignificant, especially, with reference to Pharmaceutical cluster, it is almost non-existing. Friends and family seems to be better alternate for enterprises over Non-Banking finance companies.
Overall debt supply to Indore Pharmaceutical cluster is ` 6147Lakhs with 82 percent targeted to working capital with just 18 percent for term loan.The range of financial products is limited to working capital with typical collateral approach. In fact, the quantum of collaterals is quite high, in some case even 100 percent, especially when enterprises are initiating new relationship with financial institutions.
Gap Analysis
The gap analysis shows that there is current gap of ` 1829 Lakh for Indore Pharmaceutical cluster of which immediate requirement is for term loan.
Indore Pharmaceutical enterprises foresee good growth prospects for the cluster in near to medium term, thus, their demand for debt for increasing capacity is very high. Further, they also state that this will eventually help them to grow their turnover to nearly 60-80 percent, which will results in increase in working capital requirements as well.
It is very important for the financial institution to adopt different approach to fulfill this gap, Since, Indore Pharmaceutical cluster is structured and is already having exposure to debt from banks and have already offered collaterals; it may be difficult for enterprises to offer new collaterals. Thus, financial institutions have to look at softer option of extending collateral free loan or subsidized loans or leveraging CGTMSE options.
Quasi equity product is recommended for this cluster as current collaterals are exhausted. With regards to working capital loans, there is need for reviewing the trade-receivablesproduct feature covering more than 90 days receivable and facilitate in securitization of the existing loans can help them to leverage the finance better.
2. Background and context
contributes 8 percent of country GDP, 45 percent of the industrial output, and 40 percent of total exports. Additionally, it provides employment to approximately 110 million people. The report also mentioned that 94 percent of total MSMEs are unregistered, with a large number of them being informal or unorganized.
Ministry of Micro, Small and Medium Enterprises annual report 2011-12 shows total 36.17 million functional MSME in India with nearly 95 percent of the being unregistered and nearly 68 percent representing service sector. The report extrapolates following figures for year 2011-12 based on MSME census of 2006-07:
Table: 2Performances of SSI / MSME Units, Employment, Investments and Gross Output Year Total WorkingEnterprise
(In Lakh) Employment (In Lakh) Market Value of Fixed Assets (In Crore) Gross Output (In Crore) 2012-13 447.73 1012.59 1176939.36 1834332.05
Source: Ministry of MSME
There are multiple challenges for MSME development, the important one being “informality and unstructured” nature of the sector, most of the MSMEs do not have structured data regarding their business turnover and projected business plans, added to that they are too thinly spread across various industries and geographies. All the factors only make the sector look very risky and their lack of capacity to prepare and mitigate dynamic market and policies changes make them all the more vulnerable.
2.1 Area profile:
Indore,one of the largest cities in Madhya Pradesh, is also the industrial and commercial capital of the state. Indore is spread across 3,898 sq. kms and is situated on the Malwa plateau at an altitude of 553 meters above sea level. It is surrounded by the districts of Ujjain to the north, Devas to the east, Khargone (West Nimar) to the south, and Dhar to the west. Indore district consists of 4 Tehsils, Depalpur, Sanwer, Indore and Mhow. Number of Blocks in the district is 5 (consisting of 36 Police Stations). There are total 335 Panchayats and 649 villages in these 4 blocks.
Madhya Pradesh has 1.08 Lakh registered and 11.81 unregistered MSME providing employment to around 26 Lakhs people .It is among the fastest growing states in India; gross state domestic product (GSDP) grew at a compound annual growth rate (CAGR) of 15.7 per cent during 2004-05 to 2012-13. Industries in Madhya Pradesh are growing at 7-8 percent annually and MSME contribute to 29 percent of the state GDP.
2.2 Indore Industries profile:
Indore has many industries namely Automobile, Pharmaceutical, Software, Retail and textile. Trading is also very important activity as it is well connected across by road, rail and airways. The major industrial areas surrounding the city include the Pithampur Special Economic Zone and the Sanwer Industrial belt. Industrial area of Indore is spread across 576.45 hectares with 7 major clusters. The M.P. Audhyogik Kendra Vikas Nigam (Indore) Ltd (MP-AKVN) is a public sector undertaking of the Government of Madhya Pradesh and a subsidiary of M.P. State Industrial Development Corporation. The undertaking has developed many prestigious industrial growth centers.
There are total 2522 registered MSME unit in Indore as of December 2012. Following table gives break up.
Table: 3 Indore MSME details
Category Total
Micro 2180
Small 277
Medium 6
2.3 Pharmaceutical industry:
According to Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of India’s Pharmaceuticals industry between 2008 and September 2009 was US$21.04 billion with the domestic market worth US$12.26 billion. Brand India Equity Foundation says that the Indian pharmaceutical market is likely to grow at a compound annual growth rate (CAGR) of 14-17 per cent in between 2012-16. India is now among the top five pharmaceutical emerging markets of the world.
According to recent study2 , the Indian pharmaceutical industry has 200 medium and large size R&D-based pharmaceutical companies including multinationals, government owned and Indian private companies. Besides, it is estimated that there are 10,000 smaller licensed generic manufacturers, out of these, only 3,000 are operational.
Indian pharmaceutical sector is highly fragmented with more than 20,000 registered units with severe price competition and government control. It has expanded drastically in the last two decades. It is estimated that 70 percent of the market share is held by about 250 large units.
2.4 Indore Pharmaceutical cluster profile:
The history of the pharmaceutical industry in Indore can be traced back by around hundred years, when Wadnere Industries, a gripe water manufacturer for children, was established. Later, the first industrial estate was established in 1954. In 1958, the state government of Madhya Pradesh constructed multiple-shed complexes, enabling provision of basic infrastructure, which attracted pharmaceutical entrepreneurs to start business. The next decade (1960s) saw growth of Ayurveda and allopathic industries with the establishment of Laxmi Bai Nagar Industrial Area by the Industries Department of the Government of Madhya Pradesh. However, the real boom in the pharmaceutical industry was marked by the beginning of active involvement of Madhya Pradesh Laghu Udyog Nigam (MPLUN), a government agency, in marketing. The early nineties saw establishment of a pharmaceutical industrial estate at Pithampur and that of Dawa Bazar, which covered 200 pharmaceuticals companies under one roof and helped wholesalers establish offices. Indore’s Dawa Bazar is one of Asia’s biggest pharmaceutical trade houses, where apart from wholesale and retail outlets of small manufacturers of the cluster, multinational and other big companies have marketing offices.
The pharmaceutical cluster of Indore comprises units producing allopathic and ayurvedic formulations in various dosage forms including syrups, tablets, capsules, ointments, I.V. fluids and eye drops. The following table provides overview of Indore’s pharmaceutical cluster.
Table: 4 Number of pharmaceutical MSMEs up toMarch’12
Category Number
Micro 40
Small 13
Medium 0 Total 53
Source: District Industry Centre, Indore
The above categorization is worked out based on the original investment in plant and machinery at time of registration.Hence, may not truly reflect the current gross cost in plant and machinery. Over a period, some of the micro and small would have moved to next level, which is not reflected here.
2.5 Development of MSME Clusters
Micro, Small and medium enterprises operating in the same or inter- related industrial sectors tend to concentrate in specific geographic locations. This phenomenon has been observed in all parts of the world. The key reason for this phenomenon is to leverage and derive a clear competitive advantage from:
(a) The proximity to sources of raw materials and other inputs,
(b) The availability of suitably customized business development services (BDS), (c) The abundance of clients attracted by the cluster tradition in that industry, and (d) The presence of a skilled labour force
The Ministry of Micro, Small & Medium Enterprises laid special emphasis for development of clusters and launched a scheme for technology up-gradation and management called UPTECH in 1998. Although it was having a cluster based approach for development of MSEs, it was mainly technology-focused comprising of a diagnostic study, setting-up of a demonstration plant and organizing workshops, seminars, etc. for quicker diffusion of technology across the cluster of small enterprises.In August 2003, the scheme of Ministry of Micro Small and Medium Enterprises was renamed as Small Industry Cluster Development Program (SICDP) and made broad based by adopting a holistic pattern of development of the cluster encompassing marketing, exports, skill development, setting up of common facility centers, including technology up gradation of the enterprises, etc. SICDP guidelines were comprehensively revised in March, 2006 making the cluster Program more broad-based by facilitating substantial economies of scale in terms of deployment of available resources in the medium to long term. The Government of India’s assistance under the scheme was enhanced up to. ` 800Lakhsper selected cluster to support soft as well as hard intervention, including setting up of a common facility
Centre.
As per the Promotional Package announced by the Government, SICDP was renamed as Micro & Small Enterprises - Cluster Development Program (MSE-CDP) to make it more attractive, though the basic features of this scheme have been retained as such. The proposals for setting up new clusters are considered under MSE-CDP and the quantum of grant is raised to 75 percent of the cost and the project cost has been raised from ` 500 Lakhs to ` 1000 Lakhs. Raising the project cost to ` 1000 Lakhs and the central grant upto ` 750Lakhsis quite attractive and has encouraged the setting up of new clusters for micro and small enterprises.
2.6 MSME Credit Challenges
Currently, only 5 percent of India’s 44.73 million MSMEs are estimated to use external sources of formal capital. MSME firms frequently cite limited availability of timely and adequate credit, high cost of credit, and high collateral requirements as key barriers. Lending institutions have internal rating models for assessment of project proposals. The risk involved in a project is assessed based on various parameters such as project details (project concept, location, sector type, project strength through DSCR, project IRR, payback period etc.), borrower background, fixed asset information, cash conversion cycle, previous relationship of the bank with borrower, and details of existing and proposed credit facilities.Due to less favorable conditions existing at MSEs, loan approval either takes longer or gets altogether rejected. Security in the form of collateral, guarantees and fixed assets, are not always available. The cash conversion cycle is generally unfavorable leading to unstable cash flows. This is also compounded by absence of credit ratings, basic financial information and a coherent business plan.
Awareness of banking processes and modern technical knowledge is also often found to be lacking. Because of informality and unstructured nature, most of the MSME do not have structured data regarding their business turnover and projected business plans, added to that they are too thinly spread across various industries and geographies. All the factors only make the sector look very risky and their lack of capacity to prepare and mitigate dynamic market and policies changes make them all the more vulnerable.
3. Approach and Methodology
The study used combination of both quantitative and qualitative methods and included direct and proxy indicators to understand stakeholders’ experiences, views, and perspectives on credit demand supply issues and challenges.
3.1 Cluster Definition
“A ‘cluster’ may be defined as the agglomeration of SMEs producing same/similar products/services or engaged in the same line of manufacturing activities or services, located within an identifiable and, as far as practicable, contiguous area”3
servicing in Pharmaceutical sector within the geographical cluster of Indore as per DIC-records
3.2 Objectives of the study
a) Map Indore pharmaceutical MSME stakeholders
b) Understand and analyze pharmaceutical cluster credit demand for MSME. c) Assess MSME credit supply to pharmaceutical cluster
d) Analyze credit gap and understand issues and challenges
e) Identify and shortlist top 10 large manufacturing and service pharmaceutical companies f) Recommend appropriate financing strategy for Indore pharmaceutical MSME
3.3 Scope:
The scope of the study is defined under following
a) Cover registered micro-small and medium enterprises only b) Will cover only allopathic private companies.
c) For top 10 large companies, study will limit to identifying and shortlisting only.
3.4 Sample size & Selection
The team identified over 40 companies and sought appointment, of which 25 MSMEs responded.The shortlisted pharmaceutical units are spread across the different industrial areas in the cluster. The study captured 33percent of the total universe across all industrial areas of Indore, carried out in-depth interviews covering across micro-small and medium enterprise. Since the desired number of Medium and Micro enterprises was not available, the same werereallocated to small enterprises. Representative sample across categories was ensured. Interviews of several supply and demand side stakeholders namely commercial banks, state finance corporations, district lead bank manager, Industrial Associations, District Industries Centers (DICs), MSME-DI and local SIDBI officials was carried out to understand the supply aspects and macro-economic factors.
Table: 5Geography coverageof sample survey Name of the Area
Sanwer Road – 6 (Sectors A-F) 50 percent
Pologround 5 percent
Rau Industrial area 30 percent
Laxmibai Nagar /Khila Maidan 0 percent
Bhagirath Pura 0 percent
Electronic complex 0 percent
Udyog nagar-Palda 0 percent
Hatod Road 15 percent
Table: 6 Supplystakeholders interviewed
Name of the Bank Department
Bank of India Lead Bank/Priority sector State Bank of India SMEE CCC
HDFC Business Banking working capital
SIDBI General
Bank of India Lead Bank
Since many Micro and Medium enterprises were not available. The study could only cover the following sample.
Table: 7 Pharmaceutical cluster coverage
Category Number of Enterprises
Micro (<25 Lakhs) 3
Small (>=25 &<5 Crores) 16
Medium (>=5 Crores &<10 Crores) 1
3.5 Data collection tools:
The study is carried out based on data collection tools proposed by SIDBI. In addition, Intellecap used interview guide for capturing information from other stakeholders.
a) Structured Interview/ Questionnaire for MSME units
b) Structured interview questionnaire for Government officials, Commercial Banks, Financial Institutions and Industry association
c) Secondary sources namely annual reports, financial statements, census, literature 4. Cluster credit demand
4.
Cluster credit demand
4.1 Cluster Technical profile 4.1.1 Investment Size
The biggest share of the sample MSMEs have gross investment in plant and machinery in range of ` 25 Lakhs -100Lakhs, followed by 25 percent and 20 percent of the companies in range of ` 100-300Lakhsand ` 300-500Lakhs, respectively.
On Micro-Small-Medium scale, 80 percent of the samples are small scale, while 15 percent are micro, and remaining 5 percent are medium scale companies.
The above analysis is the true reflection of the total universe of Indore pharmaceutical cluster. This is also validated by the cluster associations, the major reason behind this phenomenon is that Investment in plant and machinery is the key for pharmaceutical companies as they have to follow to highest quality norms not only to be able sell their products but also adhere to regulatory prescribed requirements to operate its business.
4.1.2 Ownership status
Legal ownership structure is largely driven by the size of the organization and its capital requirements, the analysis of the Indore Pharmaceutical companies are discussed below.
Figure: 2 Ownership structure of cluster sample
The study analysis shows that 40 percent of the sample respondents are private limited, 30 percent are partnership, 20 percent are sole proprietorship, and the rest are limited liability partnership and public limited companies. This isreflective of the overall Indore pharmaceutical cluster and same is also confirmed by respective association heads.
4.2.. Customer profile
The pharmaceutical cluster has wide variety of customer profiles for selling their products. It is interesting to notice that 40 percent of pharmaceutical companies are selling products such as tablets, syrup, powders (ORS) under their own brand name to local retailer and followed by 20 percent each for Government and export markets.
To manage cash flow better and diversify risk, each of these companies is maintaining multiple customers for selling their products. While analysis on M-S-M wise customer profile shows that micro segment do not have Government as its customer, as they do not fulfill the minimum criteria and standards prescribed by Government for participating in the tender process. Among micro category 67 percent are selling their own brand, which they feel, give them better margins. Even among small, many are selling to other state Governments, mostly to Gujarat.
Figure: 3 Customer profile of cluster sample
4.1.4 Business turnover
Business turnover is the key metric that indicate the real growth trends of the pharmaceutical companies and cluster on overall basis. The results on the trend are fairly represented in the graph below.
Figure: 4 Average turnover of cluster
The total sample’s turnover for Indore pharmaceutical cluster is` 12426 Lakhs in 2012-13. The small scale companies contributed nearly 96 percent to the sample turnover while the rest 4 percent is shared by micro and medium scale companies. The sample turnover has been growing at CAGR of 12 percent for last 3 years;this is representative growth rate of small-scale respondents. The turnover of micro respondents is growing at slower CAGR of 8 percent, while medium scale respondents observed faster growth in last 3 year at CAGR 21 percent. The difference in growth pattern is predictable as medium scale enterprises have better access to financial, human and technical resources required to expand the business as compared to small and micro enterprises.
The sample data is extrapolated for Indore pharmaceutical cluster, assuming the same distribution of M-S-M enterprises, it is estimated the total current sales turnover of the cluster to be approximately ` 27959Lakhs.
4.1.5 Payment terms
All respondents answered to the questions related to payment terms with their suppliers and customers, based on the payments terms with their key suppliers and customer.On supply side, 45 percent of the sample companies have credit cycle ranging from 31 days to more than 90 days with 1 or more respective supplier(s) while only 35 percent of the companies pay their suppliers in advance. On customer side, 75 percent of the sample companies receive their payment in 61-90 days, and 25 percent receive their payment in more than 90 days. Only 10 percent of the sample companies receive payment in advance from atleast one of their respective customers.
Figure: 5 Payment terms of cluster
Given, all respondents are involved in manufacturing, it is essential that working capital funds are adequate to pay wages and continue production. In the study, the working capital loans have contributed to nearly 83 percent of the total debt issued to the respondents in the past. This figure is much higher than the IFC reported figure of 70 percent of total debt demand for manufacturing sector, which itself highlights the importance of working capital finance for smooth functioning of pharmaceutical cluster in Indore. It can be concluded that Indore Pharmaceutical companies mostly operate on slightly longer credit period across their supply chain with the support of working capital funds from financial institutions.The cost of managing this credit period is in the range of 0.75-5.0percent per month. Predictably, small and medium respondent enterprises are observed to have exercised better bargaining power over their suppliers which allow them to lower their cost of credit to less than 4 percent in most cases, as compared to respondent in micro enterprises, which are observed to pay 4-5 percent to their suppliers. It can also be observed that 31-60 days period seems to be critical period. The cost is mostly met through margin than passing on the cost to customer.
4.2 Cluster credit profile 4.2.1 Loan history
All the respondents have availed working capital/term loan in past and were able to timely service their loans. 95 percent of the sample companies have submitted some kind of collateral to their lenders.
4.2.2 Working capital related
Only 45 percent of the sample companies are seeking working capital loans in future and all of them want this for raw material purchase. While need for other expenses namely for training and marketing is minimal. It is interesting to observe that in spite of current 83 percent of the companies are having working capital facilities still they are looking for enhancing the quantum in future.
4.2.3 New Project/Capacity Expansion
85 percent of the sample companies reported their purpose(s) of taking term loan. All of them want to use term loans for purchase of new machinery. 59 percent also want to use the term loan for construction of new building.
4.2.4 Purpose of Loan
It was noticed that pharmaceutical companies in Indore are seeking loans for multiple purpose, following graph is discussed.
Figure: 6 Loan purpose of cluster
It can be concluded from the above graph that the significant number of companies’first preference is term loans, it is noticed that, companies see scope for growth and hence want to invest in plant and machinery and also upgrade to new technology to adopt GMP. Further, during individual interview respondents also shared that, their current working capital loans are reasonably sufficient, infact are not able to use fully in some instance as their capacity is limited. However, they see need for more working capital going forward as they are foreseeing industry growth.
4.2.5 Sources of Funds
Total term loan and working capital loan taken by cluster sample in past is ` 582 Lakhs and ` 2759 Lakhs, respectively. Public sector banks are most preferred sources of borrowing for working capital as well as term loan among respondent M-S-M enterprises. Nearly 91 percent of the working capital loan and 73 percent of the term loan is provided by public sector banks such as State Bank of India, Bank of India and Central Bank present in the region, while the balance is provided by private sector namely HDFC, ICICI and Axis Banks.
Figure: 8 Lenders’ outreach across sample M-S-M enterprises
The above analysis shows that micro enterprises have accessed only public sector banks to meet their working capital/term loan needs. While small enterprises have accessed other sources such as, Private Banks and Cooperative Banks to meet their loan requirement. This indicates that public sector banks are reaching the most unreached i.e. micro category.
Further, the micro scale respondent have been crowded out by the small and medium scale respondent enterprises, which have received major portion of the public sector bank funding, nearly 98.9 percent and 91.7 percent for working capital and term Loan. The above findings are matching with the sample survey4 conducted by D&B India in Indore on Pharmaceutical cluster it is found that 71 percent of the credit supply is through public sector banks.
To understand the correlation between nature of fund sourced and ownership structure in pharmaceutical cluster, brief analysis is carried out .The results and graph can be seen below.
Figure: 9 Loan accessibility based on ownership structure of sample MSMEs
The analysis shows that sole proprietorship firms contributed merely 6 percent and 16 percent of the Working capital and term loan amounts respectively availed by the sample companies in the past. This highlights the fact that it is difficult for sole proprietorship firms to raise funds (debt or equity) from the external sources as compared to private or public limited firms. These are generally
dependent on their own funds or other informal sources such as family and friends.
4.2.6 Type of collateral
While availing loans nearly 95 percent have submitted collateral. Most of them have utilized multiple type of collateral in securing loan.
Figure 10: Types of collateral used by cluster
Majority, with 89.5 percent, has used fixed assets atleast once while availing loan. Other preferred collateral types are personal guarantee and current asset/stock. It can be concluded that access to collateral free loans are not easily available to pharmaceutical companies in Indore cluster and in fact many of them are not aware about the CGTMSE and did not availed as well.
4.2.7 Problem faced in availing loan
Out of the total sample surveyed only 75 percent companies provided response(s) to the question related to process/term/other problems faced while applying for loan. It is noticed that respondents faces multiple issues across process and terms. The analysis is captured below. Micro enterprises have limited access to financing options as most financial institution require extensive documents list and collateral based financing, while most micro enterprise possess limited movable/immovable assets and don’t have strong financial track record which makes it difficult for financial institutions to map their credit worthiness.
4.2.8 Term related
Nearly 65 percent of the sample companies reported one or more problems that they have faced while applying for loan. 62 percent of them believe that the required document list is difficult to arrange. While 46 percent believe that collateral/margin requirements by banks are too high.
4.2.9 Future Loan requirement
Analysis on future loan requirements shows that nearly 80% of the respondent are in need of loans, while 20% does not require any loan, it is noticed that mostly micro enterprises are not really looking for any loans as they feel that they cannot manage to scale up their operation and perceive competition going forward.
Figure: 12 Future loan requirement of cluster
D&B India sample survey5 in Indore on Pharmaceutical cluster interesting also note that nearly 36 percentof the sample respondent foresee future requirement for next 2 years.
4.2.10 Slab wise credit demand
Working Capital Related
Credit Amount Number of Enterprises Total Demand
Upto 15 Lakhs 1 15
15-50 Lakhs 3 90
50 Lakhs - 2 Crores 5 555
Above 2 Crores 1 500
Total 1160
Term Loan Related
Credit Amount Number of Enterprises Total Demand
Upto 15 Lakhs 1 15 15-50 Lakhs 5 220 50 Lakhs - 2 Crores 5 620 Above 2 Crores 3 1050 Total 14 1905 4.2.11 Preference on loanterms
The responses to other parameters related to credit instruments and loan processing were mixed. The preferences across segments for term/working capital loans are as follows:
Table: 8MSMEs’ preferences on loan terms
Terms Micro Small Medium
Moratorium period 3-12 months 1-16 months 6 months Loan sanctioning time 1 week – month 15-90 days 1 month
Payment terms EMI EMI EMI
Minimum promoter’s
contribution 0-25 % 10-30 % 25 %
Repayment period 5-7 years 5-10 years 7 years
b. Working Capital Loan
Moratorium period - None
-Loan sanctioning time - 15-30 days
-Payment terms - EMI
-Minimum promoter’s
contribution - 10-25 %
-Repayment period - -
-While the responses are subjective, based on respondents’ past operating experience, it can be observed that preferences are in close quarters for term loan across M-S-M respondents. The major differentiating factor is collateral – while small and medium scale respondents have some fixed asset that can be used as collateral, micro respondents reported that they don’t have any collateral to give. This again highlights the universal problem faced by micro enterprises across sectors which makes it difficult for financial institution to assess their credit worthiness and give loans.
Besides other factors, interest rates are critical in determining willingness of MSMEs to apply for working capital/term loan. 45 percent and 75 percent of the respondents provided details about their preferred interest rates for working capital and term loans, respectively. Forw working capital loans, 67 percent respondents showed willingness to pay interest in range of 10-15 percent. This is much higher as compared to term loans, for which, only 13 percent respondents are willing to pay interest in range of 10-15 percent per annum. The willingness to pay higher interest rates for working capital loan has major implication for financial institutions such as SIDBI in designing credit instruments and setting interest rates.
Figure: 13 Interest rates preferred bycluster
4.2.12 Process related
35 percent of the respondents reported one or more process related problems that they have faced while applying for land. 71 percent of them believe that processing time for loan is too long, while 29 percent feel that procedure for executing the loan document is complicated.
observed during D&B India’s sample survey64.2.9 Future Loan requirement &B India sample survey7 in Indore on Pharmaceutical cluster where the respondent felt that one of the major obstacles for Indore MSME pharmaceutical cluster is that banks adopt conservative lending approach, while assessing their loan application. They see high interest rate, cumbersome process, collateral requirement and hidden cost as moderate obstacle.
4.2.14 Awareness
MSME focused financing schemes can only achieve their objective of narrowing supply-demand gap when targeted MSMEs are aware about them. Spreading awareness about the financing schemes, especially among micro enterprises, poses a major challenge for private as well as government financial institutions. The same is highlighted by the responses of sample micro respondents of Indore pharmaceutical cluster. None of the micro respondents were aware about any MSME scheme.
4.3 Expected Growth (base figure analysis)
Indore Pharmaceutical cluster stakeholders are very positive about their future growth, majority of them nearly i.e.80 percent of the respondents reported high positive turnover growth for next 1-5 years’ time horizon, given they receive working capital deemed necessary by them. It can be observed that micro respondents expect to gain maximum with 88 percent increase in their turnover in next 5 years followed by small and medium enterprises in the same order. This need to be rationalized since overall industry will not grow at this rate.
Figure: 14 Cluster forecasted growth and turnover
4.4 Cluster credit demand estimates
Total cluster demand for working capital and term loan is calculated based on the methodology proposed by SIDBI. The average turnovers observed among Micro-Small-Medium respondents are respectively used to estimate cluster turnover in 2012-13. Further, average growth rate observed among sample MSMEs (for last 3 years) is used to estimate cluster turnover in 2013-14.
Working capital requirement is calculated according to Nayak Committee’s guidelines, considering 25 percent of the forecasted turnover as working capital requirement and 80 percent of it as working capital demand.
Term loan demand is estimated based on average growth rate of fixed assets for MP Pharmaceutical sector in 3 years (from 2009-2011, Source: Annual Survey of Industries). The same has been used to estimate increase in cluster’s fixed assets in 2013-14. During primary survey, it is found that sponsors generally make contribution of upto 30% for term financing, and rest 70% is financed by banks. Postconsultation workshop it is decided to take 75% of the term loan can be financed by bank to estimate term loan requirement in 2013-14.
Table: 9 Demand side calculations
The above table analysis shows that the total working capital requirement for the Indore Pharmaceutical cluster is around `
7,976Lakhs of which around 79 percent is for working capital and the balance is needed for term loan.
5. Supply side analysis
In this section focus on supply side of Indore MSME in general with special focus on Pharmaceutical. Intellecap carried primary and secondary research including field visits to understand the financial institutions’ current and future approach towards Indore Pharmaceutical cluster.
According to Fourth All India Census of MSMEs (2006-07), only 11.2 percent of the registered units availed institutional finance, while only 4.8 percent of the unregistered units had limited access to bank finance. Most of MSMEs, for their credit needs, depend on self-finance, borrowed funds from friends, relatives, and moneylenders charging high interest rates.
Demand for credit arising from both working capital requirements as well as long-term Investment requirements has been estimated. The estimation method for working capital credit requirement broadly follows the method outlined in the Nayak Committee Report (1991). Of the broad contours set for the committee, one of the key requirements was to examine the adequacy of institutional credit for the MSE sector.
In the process of examining the adequacy of institutional credit, the committee, outlined methods for developing credible demand estimates for credit. While the committee stressed on strong quantitative methods for working capital credit estimation, term credit
capital. It was recommended that working capital bank credit could be as much as 80 percent of the estimated working capital requirements. For estimating term credit primary survey information will be used to obtain “Investments in Plants & Machinery” for the sample number of units covered for MSEs and relate this to sector’s investment trend to extrapolate.
5.1 Access to finance status
Data from RBI suggests that public banks account for 70 percent (` 4.5 trillion) of the banking debt to the MSME sector, while the private and foreign banks account for 22 percent (` 1.4 trillion), and small banks such as regional rural banks, urban co-operative
banks account for 8 percent (` 0.5 trillion) of banking finance.As per IFC study majority of the lenders among MSME are scheduled commercial banks accounting for 92 percent of formal debt flow to the MSME sector with supply ` 5.9 trillion debt, while smaller banks such as Regional Rural Banks (RRBs), Urban Cooperative Banks (UCBs) and government financial institutions such as State Financial Corporation (SFCs) and State Industrial Development Corporations provide ` 0.5 trillion as debt finance.
5.2 Credit size:
There seem to be inverse correlation between size of loan and sector size. The breakup of the MSME show that 70 percent are in service sector, while the average loan sanctioned to service sector is lower than manufacturing. Nayak Committee recommendation data suggests that the services sector in fact accounts to only 45 percent of the total debt.
5.3 Credit purpose:
Based on the various studies, it is observed that MSME’s typical credit demand is to meet their day to day raw material purchase, paying their labor and other production requirements, which are termed as working capital. As per IFC research study8 on MSME financing across clusters like leather, engineering and Ludhiana Knitwear, also found similar trend, the study noted that nearly 70 percent of the loan requirement for MSME is for working capital.
5.4 Overview of Madhya Pradesh MSME finance
Madhya Pradesh has over all 44 banks, operating with 5949 branches and 4043 ATMs, of these branches nearly 57 percent are represented by commercial banks, followed by 20 percent each by cooperative banks and RRB and there are only 5 percent of private sector banks. Of these branches nearly 52 percent are operating in urban/metro and semi-urban areas, while 42 percent are in rural areas. It is interesting to note that nearly 1 percent of these branches operate as special SME branches catering to SME sector.
Bank advances to MSME in Madhya Pradesh is growing very rapidly with over 30 percent year on year growth. The table below shows the growth pattern over last 3 years.
Table: 10Madhya Pradesh MSME Growth Pattern
Year Outstanding (Amt. in Lakhs) YOY Growth
Total MSME outstanding March 2011 1131600
Total MSME outstanding March 2012 1345000 18.86 percent
Total MSME outstanding March 2013 1768800 31.51 percent
5.5 Overview of Indore MSME advances
Indore is one of the most advanced districts of Madhya Pradesh and is doing well in terms of overall financial inclusion including MSME. There are 44 banks operating with network of over 420 branches of which nearly 80 percent operating in metro and semi 7 A Research Study on Needs, Gaps and Way Forward (November, 2012)
urban areas ensuring access to finance to MSME. Credit to Deposit 9ratio of Indore district also confirms on the same.
Development financial institutions namely SIDBI and MPSFC have their presence in the district offering financial services to MSME. Other financial institutions namely cooperative banks and Non-Banking finance companies are also operating in the district. Development financial institutions namely SIDBI and MPSFC have their presence in the district offering financial services to MSME. Other financial institutions namely cooperative banks and Non-Banking finance companies are also operating in the district. An analysis on portfolio outstanding across M-S-M as of March 2013 is given below.
Table: 11 Indore MSME Growth Pattern
Mar-13 Outstanding percentage
Micro 837837 47.37 percent
Small 252878 14.30 percent
Medium 678059 38.33 percent
Total 1768774
Source: SLBC-MP-Intellecap analysis
It is interesting to notice that among M-S-M, small companies are lagging behind in terms of accessing loans from banks, while micro level companies are able to leverage better than their counterparts. The above analysis is for overall Madhya Pradesh and may give general representation but district wise there may be some exceptions, Indore pharmaceutical cluster is one such exception where one may find very few micro and medium companies in Indore.
5.6 Pharmaceutical cluster advances
Based on primary survey, Intellecap attempted to analyze the cluster specific advances to understand the proportion of advances/ outstanding to overall MSME advances. Banks did not provide such granular data, however orally gave estimates. Based on the discussions with various bankers public and private sector banks, it is assumed that pharmaceutical advance to total MSME advance would be around 0.5 percent 1.0 percent. After stakeholder consultation workshop, it is decided to take 1% of the total MSME advances contributing to Pharmaceutical cluster of Indore
Hence, it can be concluded that the assumptions on the proportion of Pharmaceutical finance supply figures to overall MSME arrived during interaction with financial institutions is validated to ensure the current supply is accurate to a great extent.
5.7 Cluster credit supply scenario
Total credit supply to Indore pharmaceutical cluster has been calculated based on the methodology proposed by SIDBI. The data on state MSME advances in 2012-13 (Source: SLBC) has been interpolated based on proportion of cluster turnover to state MSME turnover in 2012-13 (Source: Ministry of MSMEs) to estimate total cluster level credit supply. RBI data on percentage of term loan to total state level advances to small enterprises is used to estimate working capital and term supply, respectively.
The responses of supply side stakeholders, namely banks, are used to estimate credit supply to the cluster in 2013-14. The surveyed banks reported 1-5% of their entire loan portfolio dedicated to cluster finance. Bank of India has nearly 6% (INR 3200 Lakhs out of its total portfolio INR 50000 Lakhs), SBI has nearly 2.4% (INR 300 Lakhs out of its total portfolio INR 12500 Lakhs) and SIDBI has 1.1% (INR 122 Lakhs out of its total portfolio INR 10447 Lakhs) outstanding against cluster MSMEs. After due consultation with bankers, it has been decided to consider 1% as the proportion of advance to the total MSME advance, contributing to Indore Pharmaceutical cluster.
Table: 12Supply side calculations
The above tables clearly bring out the current credit supply to pharmaceutical companies in Indore. This is worked based on the field survey and secondary analysis. It can be concluded that the current supply of credit to Indore Pharmaceutical is around ` 6147Lakhs.
6. Gap Analysis
Credit demand-supply gap analysis in MSME is complex process as this sector is very dynamic and varies across regions, sub-sectors and industry. However, a scientific approach is adopted to define the gap appropriatelyto arrive at the estimated table.
Based on the above analysis, it can be concluded that, there is debt requirement for both working capital and term loan, with nearly 70:30 ratio respectively. These requirement is can be leveraged immediately as most of the MSME need this next 6 months.
7. Recommendations and Action Plan
A. Improve awareness of MSME schemes
It is observed that the most of the Small and Micro units are not aware of most of the MSME schemes. The awareness about the schemes is particularly very low among micro enterprises. Lack of awareness of these schemes results in lower loan applications for the banks.
For improvement of awareness following action points are suggested:
(i) Regular and periodic interactions with MSME owners by means of workshops and lectures. (ii) Posters giving out details of these schemes to put up in all industrial areas
(iii) Regular knowledge sessions in collaboration with the industry associations.
(iv) Guiding the loan applicant about these schemes and hand holding him during the loan process
Such event should be organized to suit to MSMEs convenience, in terms of date and time as most of the MSMEs are single person owner and can’t spend time during business hours.
B. Credit monitoring cell needs to activated for effective credit supply to pharmaceutical
(i) MSME-DI credit monitoring cell need to rigorously review and coordinate to credit demand and supply plan and monitor Pharmaceutical specific credit requirement and flow at regular intervals along with banks.
C. Lead Bank should create special target for enhancing credit limits to Pharmaceutical companies.
(i) Banks should leverage CGTMSE scheme and avail the CGTMSE.
(ii) Increase awareness on subsidy scheme available for Pharmaceutical sector under MSME. (iii) Interaction with Financial Institutions for availing the existing schemes and facilities.
D. Specialised loan products and process for the sector
(i) Reviseand increase the Nayak committee formula for calculating the working capital requirement for Pharmaceutical companies. The working capital requirement is very dynamic in nature; it suggested by the MSMEs that the the demand depends on its business model of the companies and their engagement at different levels in the value chain. For instance, companies engaged in formulation and marketing their own brand has different working capital requirement than those who are only involved in formulations and those with export oriented market.
(ii) Review trade-receivables products for the cluster covering more than 90 days period to cover Government supplies as their capital get blocked nearly 180 days sometimes.
(iii) Quasi equity/structured debt product to meet the capital requirement for expansion and leveraging the debt fundsEnsure proper timelines are created for sanction and disbursements to avoid delays.
E. Improved support services for MSMEs
Majority of Small and Micro units surveyed expressed dissatisfaction with the loan process. Especially the small unit owners felt that the process was too complicated, time consuming and that they were not guided through the process. As the MSE owners do not have external resources to guide them through the loan process, they ultimately drop out and avail loans from informal sources.
(i) A single point contact is appointed in the bank for a particular loan application. The assigned person should be capable enough to guide the applicant about the various government schemes, loan process, documents required etc.
(ii) A comprehensive check list of documents required is given to the applicant upfront rather than step by step basis, so that the applicant can arrange for the documents in time.
(iii) Time taken for the loan process is shortened by internal reorg and process streamlining by identifying bottlenecks. (iv) Regular updates about the status of the loan application are given to the applicant.
8. Stakeholder Workshop Feedback Report
Agenda Indore Pharmaceutical cluster
( 26th March 2014)
Discussion points 1. Discussed the final list with participants and concluded that there are total 45 functional MSME in pharmaceutical cluster in Indore.
2. Industry growth 12% looks fine.
3. For term loan need for land and building is not much as most of the investment goes for modernization. Further, MSME would invest their monies for buildings etc.
4. Organize the awareness workshop/program on week end or holiday
5. Inform about the program well in advance so as to attend the program
6. Bank should issue all certificates to MSME on time for accessing loans for subsidy, especially this should be made online
7. Subsidy loans should be routed through regular banks instead of select banks.
8. Bank finance for modernization and technology is always linked to increase in production, this may not be true as up gradation is related to quality improvement and adherence, which may not lead to increase in production, hence is not considered as term loan, this should be relooked.
9. Trade receivable should be more than 90 days and increase to max of 365 days especially for government supplies.
10. Good to get prop’er written reasons for declining loan application
Bankers Feedback 1. Overall pharmaceutical advances would be 1% of the total MSME lending
2. For term loan bank insists 25-30% as promoter contributions
3. Debt equity is 2:1
4. Term loan include Plan, Machinery and purchase of land and construction of and buildings.
Annexure 1: List of Medium and Large industries in Pharmaceutical Sector in Indore
Table 14 : List of Large and Medium Pharmaceutical industries in Indore
Sno Name of the Industry Product
1 Pure Pharma Ltd. Formulations
2 M/s Promed Laboratory Ltd. Formulations
3 IPCA Laboratories Formulations
4 M/S Alpha Laboratories Formulations
6 Plethico pharmaceutical Limited Formulations 7 Symbiotec pharmalab ltd Formulations 8 M/s Rusoma Laboratories Formulations 9 M/s Shree Pharmaceuticals Formulations
Annexure 2: List of Organisations/ People interviewed during Primary Survey of Pharmaceutical Cluster in Indore
Table 15: List of Organizations and People interviewed in Primary Survey
Sno Organization Contact Person/ Appointment
Demand Side
1 Madhya Pradesh Pharmaceutical manufacturing
organization Himanshu Sha, Anil Kharia
Supply Side
1 Bank of India Mr.Satish Pant, Lead District Manager
2 Bank of India Vikas Kumar, Chief Manager(Credit)
3 SBI Dinesh Aagiwal,Assistant General
Manager,SMECCC
4 HDFC Vivek Upadhyay,Territory Head, Business Banking
working capital
5 SIDBI Rishi Dwivedi,Deputy General Manager
Other State Holders
1 MSME – Development Institution V.P.Sharma, Deputy Director 2 District Industries Centre G.K.Tiwari, General Manager
Annexure 3: List of MSME interviewed during Primary Survey of Pharmaceutical Cluster in Indore
Table 16: List of MSME interviewed
List of Units Surveyed Address Contact
Number
Name
1 Curewin 308, Alankar Point, Geeta Bhawan Crossing,
A.B. Road 9425319855 Virendra Kumar Tare 2 Vishal Pharmaceutical Laboratories 100 A 101 B Sector E, Sanwer road, Indore 9425060570 Himanshu
Shah 3 Zest Pharma 275, Sector 'F' Sanwer Road, Indore 9827021834 Sudhir
4 Sell-Well Pharma Ltd. 92, Sector-E, Sanwer Road-Indore 9893248474 Kamal 5 Riemann Labs (P) Ltd. 69, Sector 'E', Sanwer Road, Indore 9827015819 Rajesh Bhatia 6 Adman Formulation Pvt. Ltd. Sector 'E' - Sanwer Road, Indore 9826220583 Manoj sinha 7 Cyno Pharmaceutical 115/c pologround industrial estate, Indore 9303840100 Ramesh Shah 8 Modern Lab. Plot No 45 Sector D-2, Industrial Area,
Sanwer Road, Industrial Area, Indore, 9981128886 Anil Kharia 9 Schon Pharma 145/2 A.B, Jambudi Hapsi,
Hatod Road, INDORE 9826031108 Anil Bhatia 10 Cipco Pharmaceutical 35-36/1, A.B. Road, Pigdamber, Indore 9893220311 Gaurav 11 Syndicate Pharma 118, Sector 'F', Sanwer Road, Indore 9826254421 Dinesh Kabra 12 Rasuma Lab. 149, Bhamori,Mumbai-Agra Road Indore 9977005588 Tapanjyothi
Sharma
13 Wilcure Remedies P. Ltd. - 9826062054 Dr J.K Shroff
14 D.J. Labs. P. Ltd. Lg-38, Dava Bazar, 13-14, Rabindranath
Tagore Marg, Dava Bazar, Indore 9301330009 Kailash 15 MCW Health Care 4th Floor, 407-408, Old Palasia, A B Road,
Old Palasia, Indore 7314256539 Abhijeet Motiwal 16 Apkash Pharmaceutical 275, Sector 'E' Sanwer Road Indore
17 Quest Pharmaceutical P-63, Onkar Marg, Gandhi Nagar, Indore 9329095934 Anil Sabarwal 18 Optima Health Care Sector 'D', Sanwer Road, Indore 9926564909
19 Arrow Pharma Palia Road Hatod, Indore 9893283151 Narendra Jain
20 SAMEEM 15-B, A.K.V.N Industrial Area, Indore Govind Laddha
21 Zenith Drugs 35 - a, 36 Industrial Area Extn, Rau, Indore 8435501867 Bopesh Soni 22 Pentagon Pharmaceuticals 40, Industrial Estate Extension, RAU-31 9300482164 Ashok
Ramavath 23 Anju Drug Chem Pvt Ltd 25 Industrial Area, Rau Extension, Indore - Madhukar
Pawar 24 Harsh Health Care Plot No 100-101, Industrial Area, Rau-Indore Sunil Dawani
25 Savorin 9826066607
9827033225 B. L. Sethia,
Indore Pharma Cluster
Cluster Pulse, Ahmedabad
Study Report by:
Submitted by: Cluster Pulse, Ahmedabad
Submitted to:
International Consultancy & Coordination (ICC), SIDBI
Study Report on Non-Financial Gaps of
Indore Pharma Cluster
Table of Contents
EXECUTIVE SUMMARY... 4 BRIEF BACKGROUND AND CONTEXT ... 7 Cluster Snapshot ... 10 Glimpse of our visit to Indore Pharmaceutical Cluster ... 11 Cluster Quotes ... 12 METHODOLOGY ... 14 Methodologies and Tools ... 15 Limitations ... 16 MAIN FINDINGS ... 17 Production Processes ... 17 Cost wise value chain ... 19 Global Scenario ... 21 National Scenario ... 21 Key Markets and Trends ...25 Value Chain ...27 Overview of BDS Market: Business Development Services (BDS) ... 28 Strategic BDS &Public BDS providers ... 32 Transactional BDS ... 34 AssessmentofBDSMarket ... 35 Overview of Past Interventions ... 36 SIDBI BDS PROJECT INTERVENTIONS ... 36 Summary of outcomes achieved ... 36 Benefits of Intervention: ... 36 Interventions in ICT ... 37 Interventions in Skill Development & Skill Up gradation ... 38 Cluster level impacts ... 39 Analysis Of Business Operations ( AOBO ) : ... 40 SWOT analysis ... 43 Who does who pays matrix ... 45 Integration of industry, academia and government : Triple Helix ... 46
Major Pain Points in the cluster: ...48 Recommendations emerged from stakeholder meet ...49 Actionable points as agreed by stakeholders...51 Annex 1: Members – Madhya Pradesh Pharmaceutical Manufacturers’ Organizat ion (MPPMO) (45 members)...52 Annex 2 : List of interviewees... 54 Annex 3: List of prospective BDS providers...58 Annex 4: Webliography...59
Indore Pharma BDS Diagnostic Study
EXECUTIVE SUMMARY
With a view to enable Indian MSMEs to enhance their competitiveness, SIDBI has initiated a project to carry out the diagnostic study to understand the pain points of the pharma industry of Indore to foster MSME growth, competitiveness and employment creation. The MSME sector in India has emerged as the engine of economic growth by contributing significantly towards industrial production (45%), exports (40%) and employment generation (110 million) – the second largest source of employment after agriculture. Notwithstanding the same, such growth of MSME sector is considered much below its potential growth rate.
SIDBI has been actively involved in developing the industry clusters over the past decade through various interventions like its BDS Development project in Indore. As an extension of the project to continue the work done and provide momentum to the past activities, a current situation diagnostic study has been conducted in the Indore Pharma cluster.
Cluster Pulse, carried out the diagnostic study of Indore Pharma cluster. The objective of this study is to carry out a detailed analysis of the pharmaceutical cluster of Indore with a view to identify non financial gaps and suggest appropriate measures to achieve the desired situation. The major focus is on non-financial issues, infrastructure and marketing. The sampling methodology was suggested by SIDBI for collecting the information from the stakeholders. The same methodology was followed for meeting the major stakeholders.
Cluster Pulse also met the other stakeholders in the cluster like SIDBI, MSME- DI, DIC, Pollution Control Board, local business association etc to collect information and get a perspective of the pharma cluster in Indore.
Globally, pharmaceuticals market is worth US$ 1.1 trillion. The 10 largest drugs companies control over one-third of this market, several with sales of more than US$10 billion a year and profit margins of about 30%. Six are based in the United States and four in Europe. It is predicted that North and South America, Europe and Japan will continue to account for a full 85% of the global pharmaceuticals market well into the 21st century. Companies currently spend one-third of all sales revenue on marketing their products - roughly twice what they spend on research and development.
The pharmaceutical industry in India is progressive and advanced among all the developing countries. Today, India is among the top five pharmaceutical emerging markets in the world. The market is expected to grow at a compound annual growth rate (CAGR) of 14-17 percent over 2014-16. The total revenues of the market stood at US$ 11 billion and are estimated to be US$ 74 billion by 2020. 40% of this is contributed by MSME’s.
The cluster firms in Indore are engaged in production of mainly allopathic formulation in various dosage forms such as tablets, capsules, and liquid orals.
Madhya Pradesh Pharmaceutical Manufacturers Organization (MPPMO) is one of the most active associations in Indore along with 2 other association namely Madhya Pradesh Small Scale Drug Manufacturers Association (MPSSDMA) and Madhya Pradesh Ayurvedic Manufacturers (MPAMA). There are 45 members with the association. The associations are working towards representation of the issues and pain points to the government and have been utilizing the platform of projects like this to reach out the government and the industries as well. Identification of pain points was carried out in stakeholder meetings – individually &in group meetings. The possible solutions to the pain points were discussed with the association members & stakeholders and they are ready to associate with the same.
Some of the major issues faced by the pharma industry in Indore include absence of analytical lab and R&D facilities, testing samples travel to Bhopal & Gwalior for reports, under financing of working capital, weak coordination between the Government organizations and Pharma industries. Very few companies have Good manufacturing practices (GMP) and even fewer have WHO GMP standards, due to which they cannot export to regulated markets. Knowledge of market access to non regulated markets is also low. There are severe manpower shortages of people who know drug registration process and WHO GMP norms. A strategic BDS provider in this area is of utmost need. Raw materials prices fluctuate very frequently and thus pose a challenge for the industry. Labor &technical staffs are not properly trained requiring a common facility centre to cater to the need of training. Raw material bank is another area
Suggestions were also sought from the industry people itself for the pain points faced by them. Some of them include establishing Common Raw material bank, Common Facility centre, Common Analytical Testing Facility, Common centre for training, Training and support center for patent applications, Warehousing and logistics management, Export market know how training through BDS provider, Usage of ICT (ERP-CRM) for better utilization of resources, Industry –institution linkage to be developed to increase the trust level between industry & academicians, Common effluent treatment plant etc.
During the interactions with the local stakeholders, a common feedback which was shared was the need of strategic BDS in the cluster as it results in a long term and sustainable intervention of the resolution and it then acts as a driving force for the development activities in the cluster.
After understanding the cluster by carrying out the diagnostic study, it is concluded that the non-credit needs (access to strategic services including training, capacity building, skill improvement, marketing inputs, product development, productivity enhancement, design, common facilities, credible information access etc.) is one of the biggest challenges for MSMEs. Thus a balanced approach towards both credit and non credit needs would be required to strengthen the eco system for MSMEs in Indore pharma cluster.
BRIEF BACKGROUND AND CONTEXT
The Indore Pharma ClusterOverview
Indore is the industrial capital of Madhya Pradesh, with a longhistory; Indore has been a major Indian City right from the pre - independence days. Once, the seat of the great Holkar Dynasty, Indore has had the advantage of being centrally located in the country, such that most places in central, western and northern India are within reasonable reach. Added to this, the richness of resources in the central Indian plains has made Indore a fertile ground for industrialization. It has had a heady blend of old and new, with the bustling factories on one hand in Dewas, Pithampur and Sanwer Road and palace complexes on the other.
Indore is called the “Mini Mumbai” of India. A town that has seen rapid growth in the last 12 years, it is an important business and industrial center. Pithampur the third largest Industrial belt in Asia and Dewas houses major factories of large companies. The importance of Indore can be judged by the fact that the country’s major domestic airlines flyin.
Being one of the fastest developing cities of Central India, the state government has been pumping in a good deal of its funds into development here. It has also attracted investment in the area of communication and information technology. In the last decade, Pithampur, Indore and Dewas have performed as the most dynamic Industrial zone of Madhya Pradesh. Pithampur, a well-developed industrial area 20 km from Indore, has 107 large and medium and 1,480 Small - Scale Industries. Companies of national and international repute are functioning in this area.
A large number of small-scale engineering ancillaries are also working in this prestigious industrial area. Globalization and liberalization policies of the center and the industrial policy of the state government have opened new potentials of industrialization in each and every block (taluka). MP Audhyogik Kendra Vikas Nigam Ltd, Indore, has taken up various prestigious projects for infrastructure development in and around Indore of which Electronic Complex, Readymade Garments Complex, Software Complex, etc are some of the major ones. An “Herbal Park” near Betma is also proposed for infrastructure development for Ayurvedic medicines manufacturing units. The city is also known as one of the third largest producer of pharmaceuticals in Ind
