Dr Reddy's - API production hit by Srikakulam strike

Dr Reddy's Labs, one of the biggest names in the Indian pharma sector, is facing an agitation of 600 contractual workers at its Active Pharmaceutical Ingredients (API) unit at Srikakulam, Andhra Pradesh. The strike has been going on from Aug 12, 2011, and has not been resolved yet. The dispute is with regard to the salaries of these workers.

According to the new articles, the contractual workers have been with the company for the past 15 years for wages of Rs 6500 per month. The company recently entered into an agreement with the contractors and workers to increase the daily wage to Rs 260 from Rs 213. In return, the workers agreed that they would not go on strike for the next 2 years.

Now, there is a sudden demand to hike their salaries to Rs 12000 per month, at par with those of the permanent employees. The management agreed to a wage hike of Rs 700, but the workers' union is not prepared to accept that. With the agitation going on, the labourers have completely disregarded the earlier work agreement. According the articles, they are also preventing Dr Reddy's staff members from entering the factory premises. 

We tried to get the details of the production and revenues losses from the company, but the spokesperson remained unavailable despite several attempts. This facility has a capacity of about 570 kilolitres a year. This unit is USFDA approved, and manufactures API ingredients. Earlier in July 2011, the company has already faced a ban on the sale of drugs in Mexico due to the violation of good manufacturing  practice rules in its USFDA approved facility there.

Even though the company has declined to comment on the losses, we, at DSIJ, have tried to work out the quantitative impact by analysing its FY11 Annual Report. We found that the company has a total API capacity of 4087 tones, with actual production of 3560 tonnes. With the strike entering the 3rd month, about 12% of its production capacity has gone under pressure. The net impact would be close to 106 tones so far, which is about 3% of its annual API production.

The share of API and pharma services has already declined from 33% in FY10 to 26% in FY11. With such minimal figures, we believe that the net impact on its revenues would be very negligible. It may become significant if the unrest spreads in its other facilities.