The markets averted a negative reaction to the Government recommendation of fixing the retail prices of 348 essential drugs at the weighted average price of brands with over one per cent market share on Friday.
According to some analysts, the market has already discounted the news.
Drug Prices to dip
The pharma sectoral index was up 1.52 per cent on Friday on the NSE with certain pharma stocks such as Sun Pharma and Cipla witnessing a sharp surge.
The move would lead to a reduction in prices of several costly brands while allowing the prices of low-cost medicines to rise. Currently, the Government controls prices of 74 bulk drugs and their formulations through the National Pharmaceutical Pricing Authority (NPPA).
According to a report by Karvy Stock Broking, the companies which are in the premium pricing band would be impacted the most.
“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 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 report said.
“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,” added the report.
May turn worse
According to a report on pharma sector by Bank of America-Merrill Lynch, the impact of this move on the Indian pharma industry would be worse than earlier anticipated and key stocks could correct on likely impact of the same, providing attractive entry points for certain stocks.
“We believe that one-time impact from the New Pharma Pricing Policy is unlikely to alter our investment thesis for our recommendations.
“We believe pharma stocks’ correction in the last two weeks have partly factored implications of draft NPPP. However, disappointment on adverse pricing mechanism could lead to further downside,” added the report.
“The previous proposal provided for ceiling prices to be raised based on an inflation linked parameter.
“We are not sure whether this provision has been retained,” said a Citigroup note.