The potential imposition of US tariffs on Indian pharmaceutical imports has sparked discussions within the industry, but global brokerage firm Citi has downplayed the likelihood of significant repercussions. According to Citi’s analysis, the probability of such tariffs being implemented remains low, and even if introduced, their impact on Indian pharmaceutical companies would vary based on their exposure to the US generics market.
Currently, India imposes a 10 percent tariff on pharmaceutical imports from the US, while the US does not levy any tariffs on pharmaceutical imports from India. Citi’s report examined the potential effects of a 10 percent tariff on Indian pharmaceutical companies, particularly those with substantial operations in the US generics market. The analysis revealed that major players could face an EBITDA (earnings before interest, taxes, depreciation, and amortization) decline of 9 to 12 percent. However, if a portion of the tariff is passed on to US buyers, the impact could be mitigated to around 5 to 6 percent. Despite this, Citi noted that transferring the full cost to buyers would be challenging due to market dynamics.
Companies with diversified portfolios and limited reliance on the US generics market are expected to be the least affected by potential tariffs. Citi identified these firms as its preferred picks within the Indian pharmaceutical sector, highlighting their resilience in the face of trade uncertainties. The report also emphasized that factors such as competition, industry fragmentation, and the influence of buying consortiums could hinder the complete pass-through of tariffs to US buyers. Products facing competition from US manufacturers or those originating from non-tariff countries may not experience any pass-through at all.
Citi’s analysis underscored the critical role of Indian generics in the US pharmaceutical market. The US heavily relies on Indian suppliers due to limited domestic manufacturing of generics. Imposing tariffs could lead to drug shortages if Indian suppliers were to exit the market, a scenario that Citi believes would deter the US from implementing such measures. The report concluded that the imposition of tariffs remains unlikely, given the potential disruptions to the US healthcare system.
In a related development, US President Donald Trump recently announced a 25 percent tariff on auto imports, set to take effect on April 3. While this move has drawn attention to the broader implications of US trade policies, the Indian pharmaceutical sector appears poised to weather the storm, thanks to its strategic importance and diversified market presence.
