The recommendation which was made by a group of ministers (GoM) regarding pricing policy of medicines in India is likely to have a negative impact on profitability of leading pharmaceutical companies, analysts of brokerage firms believe. According to analysts, the MNC will bear the brunt of the proposed pricing regulation, while Indian companies will be less affected. Companies such as GSK Pharma and Cipla will be most affected, say various reports.
As per the recommendation of GoM, retail prices of 348 essential drugs will be fixed at the weighted average price of brands that have more than 1% market share. The drugs which are brought under the price control cannot be sold at a price higher than that fixed by the government.
According to a recent report from Karvy, the companies which are in the premium pricing band would be impacted the most.
In the report, Nishith Sanghvi of Karvy Broking said, "MNCs, in particular which have a pure domestic play like GSK Pharma and Sanofi India would be impacted the most, with contraction in EBDITA margins for the business as a whole. Indian companies not having very huge exposure to the domestic play would be insulated to some extent, but what we would be seeing is contraction in EDBITA margins for the domestic segment as a whole and hence impacting the profitability."
The companies such as Dr. Reddy’s, Sun Pharma, Lupin, Ranbaxy Labs and Cipla would be lesser impacted due to their presence in the exports space, said the report.
A report from Emkay Global Financial Services said that proposed policy will cover 30% of the pharmaceutical industry and will bring down the average prices by about 10%.
"Maximum impact will be on MNC Pharma companies like GSK and Pfizer, having impact of 15-20% on FY13 EPS followed by Indian companies, like Cipla, Cadila & Ranbaxy each having 5-7% impact on FY13 EPS. Rest of the companies will have 2-3% impact on the EPS," Emkay report said.
For MNCs this would be incrementally negative with 15-20% of impact at EBITDA level due to the pricing leadership in few of the molecules with domestic exposure. The least impact is expected for Dr Reddy's, Sun Pharma and Lupin (3-5%), say a report from SBI Cap.
Analysts at India Infoline expect a 6-8% hit to the overall market in the first year. "However, given the lifting of the current controls and the provision for inflation-related price increases, the industry should be able to recoup all losses over two years. Glaxo Pharma and Cipla may see more impact due to higher exposure to the domestic market," the report said.
