New MRP provision takes wind off pharma counters

With the implementation of the new pricing system by the Ministry of Chemicals and Fertilisers from October 2 that requires companies to print the maximum retail price (MRP) inclusive of local taxes, stocks of major pharmaceutical companies witnessed high volatility.

Affected companies which closed on negative footing included Ranbaxy, Nicholas Piramal, Cipla, Dr Reddy, Cadila Healthcare, J P Chemicals and Pharmaceuticals , Torrent Pharma, Pfizer, Elder Pharmaceuticals, Orchid Chemicals ,and Alembic Ltd.

Some of the companies ending the day on a negative note on the BSE were Ranbaxy 2.5 per cent, Cipla 2.33 per cent, JP Chemicals 1.17 per cent, Pfizer 2.45 per cent, Elder Pharma 1.77 per cent and Dr Reddy Laboratories with a loss of 0.58 per cent among others.

However, gainers for the day were Wockhardt, Divis Lab and Lupin gaining 0.88 per cent, 0.07 per cent and 4.09 per cent respectively.

Jagdish Thakkar, a Vadodara based stock analyst, said, "The overall pharmaceutical stock dropped by two to four per cent owing to the new pricing system that has just come into force".

He further said the new pricing system would go a step further to upgrade the health of common man but would also lead to downgrading the financial health of majority of the pharma companies.

Companies which were able to garner 100 to 200 per cent profit earlier by using loopholes within the central taxes provision or so, are likely to be affected with the new pricing system hitting their margins. However, the affect on the companies' margin would be visible only in the third quarter results, said Thakkar.

Malav Shah, equity advisor at ShareKhan, says "The drop in the pharma stock is due to the expected shrinking in margins that will arise due to the new pricing. " He further said the market is a little apprehensive about pharma as the government is still to clarify the ambit of this provision.

The ambiguity has come about because as per the government notification, the new pricing practice is for old molecules while the government has yet to finalize which molecules fall into old and new molecule categories.

However, by March 2007 the new pricing practice will be applicable on both old and new molecule categories of drugs, Shah added.

Sarapjit Kour Nangar, vice president, research, Angel Broking, said, "The pharma stocks are moving southward due to the lack of clarity on the pricing front".

She further said stock specific movement would be seen in the coming days but broadly there would not be any major drive for the pharma stock as a whole.