Pharma Sector Faces Volatile Quarter Amid GST Impact and Weak US Generics
The article reports that the pharmaceutical sector is navigating a highly volatile quarter, influenced by dual pressures from domestic tax adjustments and persistent weakness in the critical US generics market.
Key Factors Causing Volatility
- Domestic GST Impact: The implementation of Goods and Services Tax (GST) rate rationalization (GST 2.0) has created short-term volatility in the domestic market. This includes:
- Distributor De-stocking: Distributors and wholesalers temporarily reduced inventory purchases in anticipation of or in response to new GST rates on certain drugs and medical devices, leading to uneven sales volumes.
- Pricing and Supply Chain Adjustments: Companies are managing the operational complexity of transitioning to the new tax regime.
- Weakness in US Generics Market: Indian pharma companies with a large export focus are facing continued headwinds due to:
- Pricing Pressure: Intense competition and price erosion in the US generics market continue to depress revenues and margins for export-oriented firms.
- Regulatory and Inventory Issues: Ongoing regulatory scrutiny and high inventory levels in the US market further contribute to the subdued performance of this key segment.
Outlook
The combination of these domestic and international factors is expected to result in muted profitability for many pharmaceutical companies during the quarter, despite underlying growth in domestic consumption. The sector remains dependent on the stabilization of both the GST transition and the recovery of the US generics market.
Source :- CNBC TV 18