1 day ago
April 2 is the day that Donald Trump's proposed reciprocal tariffs kick in, even as the world awaits an official announcement on the scope and quantum of tariffs from the US President.
A sector in the line of fire is Pharma, as majority of Indian Pharma exports head to the US. However, the White House has mentioned that the April 2 announcements may range on country-specific tariffs and not sectors, but that is left to Trump's discretion.
Last week, Trump had announced a 25% tariff on Auto imports into the US.
Currently, India charges a 10% tariff on pharma imports from the US, while the US does not charge any tariff on imports of Pharma from India.
Analysts believe that if reciprocal tariffs are implemented on the Pharma sector, they will, at best, be 10% on medicines imported.
But what happens in case tariffs are imposed?
Citi believes that Pharma companies will aim to pass on the tariff hikes to payors. In case the costs are not passed on to the end patients, then the entire supply chain will have to partly absorb the increase. The brokerage also believes that a full pass-through of tariffs is tough.
In case there is no pass through, companies with the highest exposure to the US generics market will likely take a one-time hit to their Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) in the range of 9% to 12%, according to Citi.
|
Company | US As % Of Revenue | Hit on EBITDA |
|
Gland Pharma |
50% |
8-10% |
|
Aurobindo |
48% |
12-13% |
|
Dr. Reddy's |
47% |
10-12% |
|
Zydus Life |
46% |
8-10% |
|
Lupin |
37% |
6-7% |
|
Cipla |
29% |
4-5% |
|
Sun Pharma |
32% |
2-3% |
|
Torrent Pharma |
9% |
1-2% |
In case there happens to be a 50% pass through, Citi expects a one-time EBITDA impact between 1% to 7% for these drugmakers.
|
Company | % Revenue From US | Hit On EBITDA |
|
Gland Pharma |
50% |
4-5% |
|
Aurobindo |
48% |
5-7% |
|
Dr reddys |
47% |
4-6% |
|
Zydus |
46% |
4-5% |
|
Lupin |
37% |
3-4% |
|
Cipla |
29% |
2-3% |
|
Sun Pharma |
32% |
1-2% |
|
Torrent Pharma |
9% |
0-1% |
Is there a possibility for India to make tariffs zero?
Removing import duty on Pharma imports from the US is doable, according to Jefferies. India imports pharma products worth nearly $800 million from the US, while exports to the country are worth $8.7 billion.
Blended import duty is below 10% as several drugs are exempted from it or just have a duty of 5%.
Jefferies believes that generic formulation players and CMO companies are at a higher risk.
Is it also feasible to manufacture in the US?
Setting up a facility in the US is a long drawn process of five to six years. Along with heavy capex, operating expenditure would also be significantly higher in the range of 2-2.5x, according to Jefferies.
These are some companies with US operations currently:
|
Company |
Facilities in the US |
|
Cipla | 2 Formulation - New York 1 Formulation - Massachusetts |
|
Dr Reddy's | API Facility - New York Formulations - Louisiana |
|
Lupin | R&D - New Jersey & Florida Formulation - New Jersey |
|
Syngene |
Biologics API - Maryland |
|
Piramal Pharma | API - Michigan Formulations - Kentucky Formulations - Pennsylvania |
|
Sai Lifesciences |
R&D - Massachusetts |
