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Moneycontrol Pro Panorama | Pharma companies to get inflation booster in FY24 

In today’s edition of Moneycontrol Pro Panorama: India must build consensus on climate funding, fertiliser subsidy likely to drop, Indian policymakers challenge EV investors, booking a fraudster becomes harder, and more

March 28, 2023 / 02:26 PM IST
Companies have either tempered price hikes due to competitive pressures or they have not received regulatory nod due to technical and procedural reasons.

Companies have either tempered price hikes due to competitive pressures or they have not received regulatory nod due to technical and procedural reasons.

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The National Pharmaceutical Pricing Authority released an update quantifying the Wholesale Price Index (WPI) for the previous calendar year. Wholesale prices in 2022 increased 12.1 percent over 2021. Prices of drugs under the National List of Essential Medicines (NLEM) are allowed to be adjusted as per the increase in WPI. In 2022, the drug price regulator revised the ceiling prices of widely used drugs based on the 10.7 percent WPI print of 2021.

The ceiling prices will have to be notified by the drug regulator. If the regulator notifies the new prices based on the year 2022 WPI, then it will be a second consecutive year of double-digit price hikes for the NLEM portfolio. Theoretically, price hikes will benefit drug manufacturers. Raw materials and logistics costs have already risen substantially in the past two years.

Drugs under NLEM generate a significant portion of India business for notable companies, including Cipla, Dr Reddy’s Laboratories, Sun Pharmaceutical Industries JB Chemicals & Pharmaceuticals, IPCA Laboratories, Alkem Laboratories and Sanofi India. “Price hikes are expected to be higher due to pass-through of elevated cost inflation and double-digit WPI,” analysts at Nirmal Bang Institutional Equities said in a note.

But investors should not count earnings gains yet. Despite a revision in ceiling prices based on 10.7 percent WPI in year 2021 the net increase in price realisation at the companies’ level is much lower in 2022, points out an analyst at a domestic broking firm.

Companies have either tempered price hikes due to competitive pressures or they have not received regulatory nod due to technical and procedural reasons. Amid growth headwinds in the US, large drug companies have stepped up focus on the Indian market. As such monthly industry data indicate feeble volume growth, a sign of subdued product offtake. Moreover, companies too take time to revise drug prices.

Still, a 12.1 percent WPI in 2022 provides reasonable scope for price hikes by companies in FY24. With wholesale prices and supply chain constraints easing in recent months drug manufacturers can look forward to better realisations in the coming year, after the projected price hikes land in the market.

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R Sree RamMoneycontrol Pro 

R. Sree Ram