How Renata's Tk1,000cr investment plan became a Tk1,400cr problem

Infograph: TBS

Highlights:

• Renata's Tk1,000 crore expansion stalled due to global disruptions
• Taka devaluation inflated project cost by Tk400 crore
• Profit margins dropped from 18% to 5%
• Loan burden grew from Tk480 crore to Tk1,900 crore
• Government price controls limit cost-pass-through on essential medicines
• Renata discontinued 194 products amid unsustainable losses

Just before the world began grappling with Covid-19 pandemic, Renata, one of Bangladesh's leading pharmaceutical companies, was gearing up for a major leap. The company had chalked out a Tk1,000 crore investment plan to scale up operations in response to growing domestic and international demand.

But then came the pandemic.

The virus brought global supply chains to a grinding halt, forcing the drug maker to put its expansion ambitions on hold. The disruptions didn't end there.

As the world economy was trying to find its footing after the pandemic, the Russia-Ukraine war sent commodity prices soaring, triggering a chain reaction that proved especially costly for import-dependent countries like Bangladesh. The taka, which traded at around Tk85 against the US dollar in early 2022, plummeted to Tk110 within six months—and further slid to Tk120 in just another six. The massive depreciation inflated Renata's expansion costs by Tk400 crore, pushing the project's total outlay to Tk1,400 crore.

And with that, the economics of expansion changed drastically.

Borrowing costs surged, and so did the prices of imported raw materials. As a result, Renata's profit margins shrank dramatically—from 18% a few years ago to a mere 5% now. The sharp decline in profitability is largely attributed to escalating loan repayment burdens. Company data shows that Renata's total loans stood at Tk480 crore in June 2021, but ballooned to Tk1,900 crore by March this year.

Yet, despite the cost pressures, pharmaceutical companies are restricted from adjusting the prices of most of their products. "As per government regulations, we cannot raise prices for 117 essential medicines. Even for the rest, approvals are difficult to obtain," said Kaiser Kabir, CEO and managing director of Renata, in an interview with The Business Standard.

The inability to pass on rising costs to consumers has forced Renata to make tough decisions. The company has already discontinued 194 out of its 626 products, citing sustained losses. "If prices are not allowed to adjust, only two or three companies will be able to survive in this industry," Kabir warned.

Renata, which evolved from the erstwhile Pfizer operations in Bangladesh, has heavily invested in research and development to remain competitive. The company currently manufactures 75 bio-equivalent products—therapeutically identical to innovator drugs—which require significant R&D investment. Last year, Renata spent Tk100 crore on research. This year, that figure is expected to rise to Tk165 crore, marking a 65% increase.

Industry leaders share similar concerns. Muhammad Halimuzzaman, treasurer of the Bangladesh Association of Pharmaceutical Industries and CEO of Health Care Pharmaceuticals, reiterated the urgency of a price revision. "Prices of everything have gone up—utilities, raw materials, logistics. Medicines are not produced on a different planet," he said. "If the government does not act now, the industry risks collapse."

Renata's expansion plan

In 2019, Renata planned to invest Tk1,000 crore in capital and machinery, backed by Tk500 crore in fixed deposits and an annual profit of Tk500 crore. However, the pandemic delayed machinery shipments from Europe and the US, postponing the expansion project. The rising dollar rate further increased costs.

Despite these challenges, Renata continued with the investment, leading it to take high-interest loans from banks, which impacted its financial costs and profits. To ease the burden, the company attempted to raise capital by issuing long-term bonds and preference shares. These efforts failed as institutional investors were deterred by the more attractive interest rates on government treasury bonds.

In October 2023, anticipating further interest rate hikes, Renata planned to raise Tk850 crore through zero-coupon bonds and preference shares to repay short-term loans. The Bangladesh Securities and Exchange Commission (BSEC) approved the issuance of Tk660 crore in zero-coupon bonds and Tk350 crore in preference shares. However, the fundraising attempt was unsuccessful due to poor subscription amid high treasury bond yields.

In March, the BSEC extended the subscription period. With this extension, Renata managed to raise Tk225 crore from preference shares and Tk150 crore from zero-coupon bonds, according to officials.

How Renata's profits decline

According to the company's financial statements, it earned over Tk500 crore in profit during the 2020–21 and 2021–22 fiscal years. However, its profit dropped to Tk233 crore in 2022–23.

In 2023–24, profit rose slightly to Tk361 crore, but in the first nine months of the current fiscal year, Renata's profit fell by 35%, reaching Tk168 crore. At the same time, finance costs increased by 56%.