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India: Healthcare
Equity Research
End of DEPB move could impact profitability for Pharma exporters
News
Economic Times (May 4) reported that the incentive scheme for export
firms (DEPB) may not be extended beyond June 30th. This scheme allows
exporters to claim credit for duties paid on materials (API for Pharma)
imported and processed for exports ultimately. This policy affects mostly
the export-oriented sector like Pharma, Textiles, Automobiles. Within our
space, amongst the largest exporters i.e. Sun Pharmaceuticals (SUN),
Ranbaxy Laboratories, Lupin and Dr. Reddy’s Laboratories (DRL), we
believe DRL could be impacted the most (given high exposure to exports
vis-a-vis its peers). That said, the future impact of this scheme could be
tough to quantify as it varies by product and by geography where the
products are sold. We will seek more clarity on this from the companies
when they report their quarterly results.
Analysis
The “duty entitlement passbook” was originally set to expire in 2007, but
was extended by the India government to encourage exports. Given Indian
exports grew by an impressive 38% (in US$) in the last fiscal year and this
was also contravening with the WTO rules, the Finance Minister is
reportedly not in favor of extending it.
This facility benefitted the exporters, as they were able to claim benefits
assuming that all inputs are imported, but were allowed the use of 50% of
domestic inputs. Whereas, upon migration to the “duty drawback
scheme”, exporters will then receive duty free entitlements which they can
use to pay import duties. We believe this would result in higher revenue
collection for the government, but exporters are lobbying for a
transitional arrangement given the macro headwinds.
Implication for Healthcare
We looked among our top names that have outside-India sales exposure –
DRL is the highest at 82%, followed by Ranbaxy at 73%, Lupin at 67% and
Sun (53%). In the current scenario, DRL could be impacted the most,
although the potential impact cannot be quantified yet, given it has to be
viewed on a product and geography basis.
We maintain our ratings and price targets for Dr. Reddy, Ranbaxy, Sun
Pharma and Lupin.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Healthcare
Equity Research
End of DEPB move could impact profitability for Pharma exporters
News
Economic Times (May 4) reported that the incentive scheme for export
firms (DEPB) may not be extended beyond June 30th. This scheme allows
exporters to claim credit for duties paid on materials (API for Pharma)
imported and processed for exports ultimately. This policy affects mostly
the export-oriented sector like Pharma, Textiles, Automobiles. Within our
space, amongst the largest exporters i.e. Sun Pharmaceuticals (SUN),
Ranbaxy Laboratories, Lupin and Dr. Reddy’s Laboratories (DRL), we
believe DRL could be impacted the most (given high exposure to exports
vis-a-vis its peers). That said, the future impact of this scheme could be
tough to quantify as it varies by product and by geography where the
products are sold. We will seek more clarity on this from the companies
when they report their quarterly results.
Analysis
The “duty entitlement passbook” was originally set to expire in 2007, but
was extended by the India government to encourage exports. Given Indian
exports grew by an impressive 38% (in US$) in the last fiscal year and this
was also contravening with the WTO rules, the Finance Minister is
reportedly not in favor of extending it.
This facility benefitted the exporters, as they were able to claim benefits
assuming that all inputs are imported, but were allowed the use of 50% of
domestic inputs. Whereas, upon migration to the “duty drawback
scheme”, exporters will then receive duty free entitlements which they can
use to pay import duties. We believe this would result in higher revenue
collection for the government, but exporters are lobbying for a
transitional arrangement given the macro headwinds.
Implication for Healthcare
We looked among our top names that have outside-India sales exposure –
DRL is the highest at 82%, followed by Ranbaxy at 73%, Lupin at 67% and
Sun (53%). In the current scenario, DRL could be impacted the most,
although the potential impact cannot be quantified yet, given it has to be
viewed on a product and geography basis.
We maintain our ratings and price targets for Dr. Reddy, Ranbaxy, Sun
Pharma and Lupin.
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