Impact of Proposed US Tariffs on Indian Pharma Sector
The announcement by US President to impose unprecedented tariffs has significantly impacted the Indian pharma sector, with Nifty Pharma dropping by 4%.
Market Impact
- Four major stocks, including Laurus Laboratories, Ipca Labs, Aurobindo Pharma, and Granules India, fell between 6-7%.
- Key players like Sun Pharmaceutical Industries, Zydus Lifesciences, Dr Reddy’s Laboratories, and Lupin have considerable exposure to the US market, with shares ranging from 30% to 50%.
Financial Implications
- A potential 26% tariff could severely affect operating profits, especially for Aurobindo Pharma and Biocon, which derive 45-50% of their profits from the US.
- Impact on FY27 operating profit could range from 3-45% if Indian companies absorb the tariff costs.
- If costs are shared with distributors or end markets, the impact could reduce to 1-22%.
Strategic Responses
- Passing costs to end consumers might raise medicine prices and lead to a reduction in product offerings.
- Companies with niche portfolios, like Sun Pharma, may be less affected due to reduced competition in specialty products.
- There is a possibility of shifting focus to other international markets and the domestic market, though this may lead to price wars.
Alternative Strategies
- Setting up manufacturing bases in the US is considered, though it involves high costs and long gestation periods.
- Current US plants contribute minimally to overall sales for companies like Piramal Pharma, Cipla, Sun Pharma, Lupin, and Aurobindo Pharma.
- Investing significantly in US capacities is deemed economically unviable due to regulatory barriers and policy uncertainties.
Investment Recommendations
- Brokerages suggest focusing on companies with a domestic orientation, such as Torrent Pharmaceuticals, Mankind Pharma, Eris Lifesciences, and JB Chemicals and Pharmaceuticals.
