Tariff Shock Could Dent Pharma Margins; Indian CDMOs May Gain But Valuations Stretched: InCred

Indian pharmaceutical exporters could be staring at a margin squeeze if the United States proceeds with fresh tariffs, according to Aditya Khemka, Fund Manager at InCred Asset Management & Alternatives. He also noted the potential upside in Indian Contract Development and Manufacturing Organisations, but cautioned that valuations in the space are not yet attractive.

“Even a 10% tariff could mean a 4% direct revenue erosion for Indian pharma companies with high US exposure,” Khemka said in a conversation with NDTV Profit. He cited a US Treasury official's recent breakdown of how tariff costs are typically split — with around 40% absorbed by the dollar, another 40% by manufacturers, and the rest passed on to end-users.

Khemka noted that if Indian firms have to take the hit on pricing to stay competitive, it could result in “significant margin impact,” especially for generics players already operating on thin spreads.

At the same time, he highlighted the potential of Indian CDMOs as long-term beneficiaries of global supply chain diversification. “These companies could grow 10–12%, or even 15% if they're adding capacity,” he said. “But working capital remains stretched, and their customers have strong bargaining power. That limits pricing flexibility.”

While the CDMO space is gaining investor attention as a structural theme, Khemka urged selectivity. “We like the business model, but not the current valuations,” he said. “You really have to watch working capital cycles to understand where the power lies.”

According to him, the pharma names best placed to weather the tariff uncertainty are those with a significant share of revenue from India, the Middle East and Southeast Asia — markets he believes offer both volume and stability without the regulatory overhang.

“These companies are better insulated from the US-China noise. In some cases, they might even benefit from trade realignment,” he added.