Pharma Firms' Ebitda, EPS Likely To Be Impacted By US Tariffs, Says Goldman Sachs
Goldman Sachs picked Torrent Pharma Ltd. for low tariff risks, and Aurobindo Pharma for earnings resilience
The Ebitda and earning per share estimates of Indian pharma companies are likely to take a hit in the likely scenario of tariffs being imposed by the US, according to Goldman Sachs. Impact on operating profit is likely to range from 3-13% on an average, assuming 25% tariffs, the brokerage said.
The US has indicated 25% tariffs on global pharmaceutical imports. Meanwhile, India has 10% tariff on US pharmaceutical products, the brokerage said.
In its latest monthly data, Goldman Sachs also lowered target prices for Indian pharmaceutical companies by 12%. As per the latest monthly economic data, trends on input costs, and market share assumption, EPS may be impacted by 0–2%, the brokerage said.
Indian pharmaceutical stocks fell 15% on year-to-date basis despite reporting better third quarter results. This happened because of growing uncertainty around US tariffs on pharmaceutical imports. The team of economists at Goldman Sachs sees potential for country-level reciprocity and product-level reciprocity for tariffs.
At the country-level segment, assuming 10–15% tariff, Goldman Sachs built a case in which higher cost of goods sold for formulation producing companies would be passed to the end customer. For generic and active pharmaceutical ingredients' businesses, there would be demand issues for tariffs.
In the second scenario, the full impact of the tariff hike on COGS would pressure the net interest margin for formulation companies. There would be price elasticity impact for API manufacturing companies, Goldman Sachs said.
Product-level approach will be more complex and time consuming for the US to put reciprocal tariff on each products, Goldman Sachs said.
Across companies, Dr. Reddy's Laboratories Ltd. remains bearish on price erosion. Lupin Ltd., and Cipla Ltd. remained cautious, while Aurobindo Pharma Ltd. remains upbeat. The most recent price tracker of Goldman Sachs suggests price stability in the US generic markets.
Goldman Sachs picked Torrent Pharma Ltd. for low tariff risks, and Aurobindo Pharma for earnings resilience. It also chose Syngene International Ltd., Neuland Laboratories Ltd.
