Business Standard reports that Serum Institute of India (SII), the maker of the popular Covishield vaccine for Sars Cov 2 pandemic, has booked windfall profits during the last two years. While the company's revenues have gone up 4.7 times in the last two years, its profits are up 4.9 times, making it the most profitable Pharma company in the country by a big margin.
The company’s net profit was up 186 per cent YoY to Rs 11,116 crore in FY22, higher than any other pharma firm in the country. In comparison, Zydus Lifesciences was at number two in the league table with a net profit of Rs 4,487 crore in FY22, followed by Sun Pharmaceuticals at Rs 3,272.7 crore. Similarly, SII’s net sales were up 256 per cent YoY to Rs 25,645 crore in FY22, putting it in second place, behind Sun Pharmaceuticals, which reported Rs 38,654 crore... In all, SII’s net sales are up nearly five times since the outbreak of the pandemic — from Rs 5,446 crore in FY20 to Rs 25,645 crore in FY22. In the same period, its net profit was up in equal proportion — from Rs 2,251 crore in FY20 to Rs 11,116 crore in FY22.
In contrast, in five years from FY15 to FY20, SII’s net sales had clocked a compound annual growth rate (CAGR) of 7.8 per cent, from Rs 3,737 crore in FY15 to Rs 5,446 crore in FY20. In the same period, its net profit had grown at a CAGR of just 2.8 per cent from Rs 1,964 crore in FY15 to Rs 2,251 crore in FY20... However, unlike in the past, SII’s top line growth in FY21 and FY22 was driven by sales in the domestic market rather than exports. In fact, for the first time in FY22 sales in the domestic market accounted for the majority of its revenues. Exports accounted for only around a fifth (19.7 per cent) of SII’s revenues in FY22, down from 77.7 per cent in FY20 and the 10-year average of around 75 per cent... The combined net sales of 274 listed and unlisted pharma companies whose FY22 finances are available were up 15.8 per cent in FY22 to Rs 4.55 trillion and increased 28.5 per cent cumulatively since FY20. In the same period, the industry’s combined net profit was up 9.7 per cent YoY to Rs 63,674.5 crore in FY22 and cumulatively up 74 per cent since FY20.
This is my summary of the numbers
Consider this. SII is a contract manufacturer of commoditised vaccines largely used in developing countries. By nature these products are inelastic, giving the makers significant pricing power even in normal times. A major share of its buyers even in normal times are governments, multilateral and bilateral agencies. Therefore, it cannot even make the (itself questionable) standard justification that a global Pharma company may have made in terms of recovering large R&D investment made.
This bounty has come from being lucky enough to having been the manufacturer of the Covid 19 vaccine developed by AstraZeneca Plc at a time when the pandemic struck. There is also no export story here, since nearly all the surge has come from the domestic market. And the buyer has not been private individuals, but the Government of India. The windfall profits are therefore financed directly from the taxpayer.
It's hard to not get the impression that SII has indulged in price gouging, and that too from the Government. This allegation was strong during the peak of the pandemic. The Indian Express had a series some time back which appeared to point to excessive pricing.
At the least, given the taxpayer financing involved, the government should set its agencies to examine the accounts of the company (and its promoters) to get an idea of its investments, its margins, and use of profits. The philanthropic funders like the Gates Foundation too should insist on the same. In fact, BMGF appears to have had some advance commitment contract with SII. Is a payout happening on that?
If ever there was a strong prima facie case for taxes on fortuitous windfall profits, this is it.
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