Citibank has analyzed the potential impact of US tariffs on Indian pharmaceutical companies and has assigned a low probability to such an event. The brokerage firm simulated a 10% tariff scenario and found that companies with a high exposure to US generics, such as Zydus, Dr. Reddy’s Laboratories, and Aurobindo Pharma, could face a 9-12% reduction in earnings before interest, taxes, depreciation, and amortization (EBITDA). However, if part of the tariffs is passed on to buyers, the impact could be reduced to 5-6%.
On the other hand, companies with lower exposure to US generics, such as Torrent Pharma, Sun Pharma, and Divi’s Laboratories, would be less affected, with an estimated 1-3% hit to EBITDA. Citi’s preferred picks in the Indian pharmaceutical sector, these companies have diversified portfolios and are less reliant on the US generics market.
The report also notes that if tariffs are imposed, they may not be fully passed on to US buyers due to various factors, including competition, industry fragmentation, and the influence of buying consortiums focused on lowering prices. Citi believes that the probability of tariffs on Indian generics is low, citing the limited manufacturing of generics in the US, the high dependence on Indian generics, and the risk of drug shortages if Indian suppliers exit the market.
The brokerage firm concludes that while the imposition of tariffs is a low-probability event, the potential impact on Indian pharmaceutical companies varies significantly based on their exposure to the US generics market. Overall, the report suggests that investors should focus on companies with diversified portfolios and lower reliance on the US generics market, such as Torrent Pharma, Sun Pharma, and Divi’s Laboratories.