Dear Reader,
The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.
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.
Investing insights from our research team
Dwarikesh Sugar: Structural story at play with ethanol focus
Indraprastha Gas: Shift to EVs pose long-term challenge albeit medium-term upside
Sun Pharma: Ransomware attack to weigh on operational performance
Economic Tracker
Pro Economic Tracker | Consumer sentiment surges, labour participation dips
What else are we reading?
Adapting day trading in derivatives to a higher STT regime
The Chinese investment problem facing Indian policymakers
The Green Pivot: Will the IPCC report bring the world out of the climate coma?
Booking a fraudster became a bit more onerous for bankers
Chart of the day: Fertiliser subsidy may drop below budget estimates in FY24
Guruspeak| How Kushal Jain worked his way through college developing and trading Algos
Middle East on ‘radar’ of global investors as it enjoys IPO boom (republished from the FT)
Two weeks into its release, ChatGPT-4 is showcasing significant improvements over GPT3.5
AT1 bonds need a name change. Call them FinCat bonds, catastrophe bonds for the financial sector
Innocent: The actor who had Kerala in splits for three decades
Israel Unrest: Benjamin Netanyahu, synonymous with crisis, faces yet another
Non-equity mutual fund tax: FDs & bullion to be more attractive, bonds to take a hit
How cleaning up pollution may be heating the planet
In India, tech is collecting loans it helped create
Technical Picks: Indian Hotels, Reliance, Grasim and Bajaj Finance (These are published every trading day before markets open and can be read on the app).
R Sree RamMoneycontrol Pro
