The US President Donald Trump intending to impose 25% tariff on pharmaceuticals imports has added to the uncertainty for the Indian pharma stocks, Citi Research said. Hence, during this uncertain period, the brokerage prefers to stick to Dr. Reddy's Laboratories Ltd., Sun Pharmaceutical Industries Ltd., and Torrent Pharma Ltd. because these companies have less exposure to the US generic drugs markets.
Citi Research said it's for the good to avoid Lupin Ltd. and Aurobindo Pharma Ltd. which have heavy generic drugs portfolios.
However, the US may opt for imposing tariff on India's generic drugs and active pharmaceutical ingredients right away owing to the heavy dependence, Citi Research said. India accounts for 60–65% of US generic drug volumes.
Companies may be forced to rationalise and exit the market, which will lead to massive shortage in the US markets resulting in price rise, Citi Research said.
Indian companies' margins are largely concentrated in top 10–20 products, despite improving significantly. A large part of the group may be operating at a low margin for even the bigger names, while smaller names are already operating at lower margins in the US market, according to Citi Research.
Import alerts in a couple of facilities in India in around August in 2023, created severe shortages and changed price dynamics in the US. The market now appeared unprepared to face another such shocks, Citi Research said.
Historically, Western counterparts are trimming their portfolios in the US. Indian companies are taking advantage of it by raising their presence. "However, if Indian players start exiting from the generics, drug shortages in the US may escalate beyond control."
Meanwhile, in case US decides to take initiatives to reduce its dependence on India, it will be a negative for the Indian pharmaceutical companies with significant presence in the US generic drug market. The world's largest economy accounts for 20% generic drug consumption.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
