NPPP Update - Ceiling prices declared - Sanofi India and Merck set to benefit - Centrum

Our analysis of National Pharmaceutical Pricing Policy (NPPP) shows Sanofi India and Merck will benefit as their major brands Combiflam and Evion will be out of price control. Vitamin E API of Merck will also be out of price control. Ceiling prices declared by NPPA reveals that leading brands of Abbott India, Cadila Healthcare, Glaxo SK Pharma, Ranbaxy Labs and Wyeth will be majorly hit. Domestic pharma companies face risks from NPPP as prices of many major products have dropped by 20-50%. Also, material cost for pharma companies is set to move up by 100-200bps due to the rise in API costs.

Sanofi India and Merck to benefit: Sanofi's major brand Combiflam (revenues ~Rs1.21bn; 7% of total) has come out of price control and now the company can increase its price by 10% annually as per NPPP provisions. The company has also launched a line extension, Combiflam plus, which is also outside price control. Merck's major brand Evion (revenues ~Rs503mn; 6% of total) and its API vitamin E have also come out of price control.

Major brand revenues to suffer: On the basis of ceiling prices declared by NPPA some major products will face between 6 and 48% decline in the revenues. Wyeth's Folvite tablets will face 48% decline while Sanofi India's Clexane's (40mg/0.4ml) revenue is set to decline by 6%. We expect major brands of Abbott India, Cadila Healthcare, Glaxo SK Pharma, Ranbaxy Labs and Wyeth to get majorly hit by NPPP.

Trade margin set to decline: For drugs outside price control and classified under price control in NLEM, wholesalers' margin has come down to 8% from 10% and the retailer's to 16% from 20%. Moreover, the prices of these products have also fallen considerably, affecting trade. But trade will benefit from price increases of 3-10% by manufacturers for products outside price control.

Benefits & risks: We expect Sanofi India and Merck to benefit as their major brands Combiflam and Evion are out of price control. Merck will also benefit from vitamin E API coming out of price control. Indian pharma companies face considerable risk from NPPP as prices of some major products have declined by 20-50%, affecting sales and profitability. The companies are also likely to get hit by the expected 100-200bps rise in the material cost.

Source : Equity Bulls

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