Indian pharma companies have recorded robust growth over the last five years, partly boosted by demand for medicines during the Covid-19 pandemic. Although a handful of vaccine makers benefitted the most, other medicine producers also saw higher-than-average demand.
In fact, the industry recorded nearly 10% annual growth almost equally matched by domestic demand and exports between FY16 and FY21. This pace moderated last year as the growth in formulation exports is estimated to have been flat due to the high base of FY21 — which had seen 19-20% on-year growth in constant currency terms — and a decline in exports to the US, where the drugmakers faced persistent pricing pressure.
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However, domestic sales rose by double digits.
The growth in the current year is expected to moderate with flattish exports to regulated markets and moderation in sales growth in the home market, according to rating and research agency CRISIL.
If we look at the top drugmakers by market value—Sun Pharma, Cipla, Dr Reddy’s, Divi’s Labs and Torrent Pharma—they outperformed the rest of the industry with cumulative revenue growth of over 15% last year.
So, how have they been doing during the last two years of the pandemic and how did they manage their human capital?
To gauge this, we picked the top five drugmakers and traced their recruitments over the last two years and the productivity generated by their human capital. We measured productivity via their total income.
Profits in the pharma industry can swing wildly due to regulatory diktat and compliance costs, and while one can also gauge productivity by profit per employee, we only focused on revenue to skim through ancillary factors.
To be sure, it’s not a direct reflection of how much exactly each employee is producing at any given point as some of these companies have acquired other businesses, which changes the mix.
A related aspect is that some people would have been hired towards the end of the last financial year and are yet to contribute to the financial numbers.
That said, the trends indicate how the top pharma majors have performed with respect to sweating their workforce.
And we can also gauge how they compare to each other.
We skipped some of the large privately held companies due to lack of comparable numbers for Mankind Pharma and Emcure.
The top five companies added over 10,000 employees in the last two years alone. It pales in comparison to say IT services majors, which added 2.75 lakh employees in the same period, but is much higher than the top FMCG majors, which added just around 7,000 in the last five years and around 3,000 in the last two years, in particular.
Talent Acquisition
For starters, let’s see how the top pharma companies have gone about adding to their workforce. The top five companies added over 10,000 employees in the last two years alone, taking their total roll call, including temporary and contractual workers, to 1.33 lakh.
This may pale in comparison to say IT services majors, which added 2.75 lakh employees in the same period, but is much higher than the top FMCG majors, which added just around 7,000 in the last five years and around 3,000 in the last two years, in particular.
Although all five drugmakers saw their team strength move up with over 1,000 people added to the total count for each of the companies over the last two years, there are some interesting differences within.
Of the five, Dr Reddy’s Labs and Divi’s Labs both saw the total employee count move up 15-20% each between FY20-FY22.
In contrast, Sun Pharma, Cipla and Torrent Pharma saw more modest growth in total people count in percentage terms. But given that Sun and Cipla employ far more people, they both added over 2,000 team members.
Revenue per Employee
Things look interesting when it comes to what these employees are generating for their company. Sun Pharma has traditionally been generating more revenue per employee and continues to do so.
In fact, if we go by hard statistics, then all five companies have seen their average revenue per employee rise in the last two years. But there has been a see-saw for two—Sun Pharma and Torrent Pharma.
While Sun Pharma had seen employee revenue productivity decline marginally in the first year of the pandemic, Torrent Pharma saw productivity shrink last year.
Divi’s recorded the biggest jump in productivity of around 36%, followed by Cipla and Sun Pharma at nearly 19% and 12%, respectively.
Notably, the average employee revenue generation in the pharma industry is much higher than that of the technology sector, though a bit lower than the FMCG companies. This can be partly attributed to the fully open market economy for consumer products as against medicines that face regulatory caps on pricing, especially for essential drugs.
The factor is around two times in general with market leaders in the two sectors—Sun Pharma and Tata Consultancy Services—separated by a factor of 3!
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Another aspect is the difference within the pharma sector. As against the IT sector, where the average revenue per employee was similar with an average of around Rs 35 lakh per employee per year, the average for the top pharma companies varies.
In this respect, the top drugmakers are similar to FMCG companies. Sun Pharma’s average revenue per employee is almost twice that of Divi’s, Cipla and Torrent, just like in the FMCG space where the average revenue per employee for Hindustan Unilever is almost two times that of Dabur.
The higher revenue per employee for Sun Pharma and also for Dr Reddy’s can be partly attributed to their large overseas exposure where they have a better pricing mix and thereby revenues.
Overall, the average revenue per employee for the top five drugmakers rose from Rs 68 lakh to Rs 76 lakh over the last two years. This is twice the average of Rs 30-35 lakh in the IT sector.
Overall, the average revenue per employee for the top five drugmakers rose from Rs 68 lakh to Rs 76 lakh over the last two years. This is twice the average of Rs 30-35 lakh in the IT sector.
Overall, the average revenue per employee for the top five drugmakers rose from Rs 68 lakh to Rs 76 lakh over the last two years. This is twice the average of Rs 30-35 lakh in the IT sector.
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Pharma Big Picture
Overall, top pharma companies created thousands of jobs during the pandemic. Another notable factor is that they managed to pull in much more revenue per employee despite adding to their workforce.
In this respect, the pharma industry is better placed compared to the IT sector, just like the FMCG sector where brands and pricing power rules, drugmakers churn out more sales.
The differences within the top pharma players are a function of the nature of businesses. Overseas exposure, for instance, allows Sun Pharma and Dr Reddy’s to generate higher sales per employee.
Source: https://www.divislabs.com/investor-relations/reports-and-filings/annual-reporting/ https://sunpharma.com/investors-annual-reports-presentations/ https://www.cipla.com/investors/annual-reports https://www.drreddys.com/investor https://www.torrentpharma.com/index.php/investors/index
