GOING VIRAL Covid-19 Impact
Inventory Buffer to Keep Pharma Healthy for Now
COS LIKE SUN PHARMA, LUPIN while being cautious about CORONAVIRUS epidemic, say there may not be any immediate impact on earnings for January-March
Kiran.Somvanshi@timesgroup.com
ET Intelligence Group:
Due to its dependence on China for the supply of some basic ingredients and intermediates, the pharma sector in India has been closely watched to assess the impact of corona virus on its supply chain. However, there may not be any immediate threat to the sector as the current quarter performance is unlikely to be impacted on account of the inventory buffer remaining with the companies.
On their third quarter earnings call, the managements of several pharma companies â Sun Pharma, Lupin, Cipla and Aurobindo Pharma â while being cautious about the impact of the spread of the virus, have ruled out any immediate impact on their performance. Lack of information about the spread of virus and lack of visibility on supply shipments is resulting in speculative increase in prices of certain bulk drugs, they said.
In Sun Pharmaâs earnings call last week, Dilip Shanghvi acknowledged the dependence on China. But he also clarified that the geography in which the majority of the pharma manufacturing units are located is physically different from the location of the spread of the virus. According to Shanghvi, the alleged near-80% price increase in some raw materials (that may be almost entirely dependent on China) is not justified and that speculative buying would have raised these prices.
Responding to an analyst question on coronavirus during last weekâs earnings call, Kamal Sharma, vice-chairman of Lupin, said that âbased on the inventories, we donât see a disruption in this quarter. If the situation gets eased out in the next threefour weeks, we donât see an issue; and we will be able to manage without any significant disruption at allâ. He acknowledged that there is no visibility on shipment of containers â with the country being in a state of lockdown.
âRight now, we are good on supplies, but obviously it cannot continue indefinitely,â Sharma added.
Lupin buys only a couple of APIs from China and purchases some intermediates specifically for the antibiotics â the cephalosporin antibiotics â from China. According to Sharma, if the situation takes three to four months to return to normalcy, there would be disruption on some of the APIs, especially for rest of the world geographies.
At Ciplaâs earnings call, its managing director Umang Vohra, said, âI think a lot of companies in the pharmaceutical industry have some stock cover available. But if this virus continues for more than a month or 45 days it will begin to create a huge issue for the pharma sector for the supplies that are dependent on China. Not everything is dependent on China, but China has a significant value chain linkage for all pharma companies.â
The managing director of Aurobindo Pharma, N Govindarajan, said that the company has an average stock of raw materials of approximately 2-3 months. âAt this juncture, we are observing critically because itâs too premature to comment one way or other,â he said. Originally, certain facilities in China were supposed to start by February after the new year holidays. They have now been told to start by around February 10 or 11. âWe are hearing that it might be 10th or 11th or could be 17th or 18th. They might start with certain local staff. We have been in touch with our colleagues on a daily basisâ, he added.
The company is also working towards donating 10,000 to 15,000 bottles of drugs like Lopinavir and Ritonavir to the Chinese government.
Given this situation, the Street would be able to quantify any adverse impact of the spread of the virus on the companiesâ performance only by July â when the drug companies would announce their June quarter results.
