'Limited immediate risk from Covid-19 to India pharma sector'

February 25,2020

The immediate risk to the Indian pharma industry from the supply shortages of key raw materials from China due to coronavirus outbreak is limited, a market report said on Monday.

The immediate risk to the Indian pharma industry from the supply shortages of key raw materials from China due to coronavirus outbreak is limited, a market report said on Monday.

However, according to the HDFC Securities' report, in the event of an extended shutdown, the industry faces risk of supply disruption and increased input cost.

"Most companies have inventory of 3-4 months and are closely monitoring the situation," the report said.

"It is difficult to ascertain specific impact at this stage but a prolonged shutdown will impact the entire supply chain which could have knock on effect on the cost of goods produced globally."

At present, India's pharma industry's dependence on China for key starting
materials (KSM) or active pharmaceutical ingredients (API) is "very high".

As per DGCIS data, share of China in bulk drug and intermediates imports was 67 per cent at $2.4 bn in FY19.

"We believe over a longer term the Indian API industry would stand to benefit as regulators encourage investments and incentivise the API industry to reduce dependence on China," the report said.

"Also, the cost arbitrage has narrowed between Indian and Chinese manufacturers given stricter environmental and compliance regulations in addition to increased labour cost in China."