Tuesday, September 26, 2023
Should you invest in a Greenfield Pharma stock, read on to understand more about this investment option
In this article, we explain the Greenfield Projects and Investments while educating readers about the benefits of investing in Greenfield projects. In the later part of the article, we would also bring you an analysis of Brownfield Investments and their potential.
What are Greenfield Projects
According to GOI FDI policy, Greenfield Projects are projects with 100% foreign investment for building new production and operational facilities from the ground up and subsequent investment is termed as Greenfield investment. In other words, Greenfield Projects could be termed as foreign startups. On the other hand, if the foreign investments are in an existing pharma company then it is known as the Brownfield Project and subsequently Brownfield Investments.
Why Greenfield Projects
Post-2011 Indian Pharma sector has experienced tremendous action in terms of foreign investment, the sudden spurt in the number of takeovers of domestic pharma companies posed a threat to the production of essential medicines, R&D and availability of technology, which forced the FDI policy to be revised in order to check unfair practices and monopoly in pricing. Greenfield Projects, on the other hand, fosters healthy competition introduces new technologies and keeps the pricing competitive. Only the medical devices category still has a 100% investment option under automatic route and is applicable for all Greenfield and Brownfield Projects.
Government Support for Greenfield Projects
According to a notification issued by the department of pharmaceuticals, the production linked incentive (PLI) scheme for promotion of domestic manufacturing of critical key starting materials (KSM)/ DIs and APIs, is designed to accord benefits to the tune of Rs 6,940 crore to greenfield projects. Under the scheme, financial incentives will be provided on sales of 41 identified products for six years. For fermentation-based products, the incentive for FY24 to FY27 would be 20%, that for FY28 would be 15% and it would be 5% for FY29. For chemical synthesis based products, the incentive for FY23 to FY28 would be 10%. Moreover according to the PLI scheme to promote domestic manufacturing of medical devices, Rs 3,420 crore has been earmarked. Under the scheme, financial incentives will be given to selected companies at the rate of 5% of incremental sales (over the base year) of goods manufactured in India and covered under target segments, for a period of five years through FY26. Government is also building dedicated medical devices and bulk drug parks and has earmarked 1400 crores for the same. Some of them are already operational. In the top of the Central Government grants, Greenfield Projects could also enjoy the benefits extended by the state governments.
Investing in Greenfield projects
After the Covid scenario, there is a rush for investment and manufacturing opportunities in India. The pandemic has made India stand tall with its numerous manufacturing hubs, production knowledge and cutting edge innovations. The homegrown vaccines are in demand all over the world while cheap manpower, scalability of markets, existing infrastructure and govt sops are attracting many foreign companies through Greenfield and Brownfield investors. Right now with all the tax sops, government-backed infrastructure and strong market demand, it makes sense to invest in the Greenfield pharma projects.
To be continued ......
The second part of the article would deal with Brownfield Investment benefits and risks so watch this space as medicircle guides you through the basics of investing in the Pharma industry.
With Inputs from
