GST casts shadow on pharma earnings
Ravi Ranjan Prasad

The GST rollout impact cast its shadow on first quarter results declared by two pharmaceutical companies, Alembic Pharmaceuticals and Sanofi India.

Pharma companies first quarter performance would have a negative impact of the GST rollout, feel HDFC Securities analysts.

Alembic Pharma's top-line declined 11 per cent year-on-year (YoY), on a high base and the pre-GST impact. Its India business declined 21 per cent YoY to Rs 230 crore, affected by de-stocking. International business declined 9 per cent to Rs 280 crore, HDFC Securities said.

Amey Chalke & Siddhant Mansukhani, analysts at HDFC Securities, said, "The read-across for the sector from Alembic's results is negative, with the GST impact appearing to be significant. Expect other companies also to report weak domestic numbers, and profitability is also likely to get a hit by discounts and loss of tax credit reimbursements to dealers."

Pranav Amin, managing director, Alembic Pharmaceuticals, in a statement post-the first quarter results, said, “The performance in the quarter was weak primarily due to the transitional provision of GST on the India branded business.”

Sanofi India reported a 23 per cent increase in profit after tax (PAT) quarter on quarter but there was a fall of 14 per cent YoY.

Arihant Capital Market, in a report on Sanofi, said, “Sanofi India posted a marginal decline in revenue of 1 per cent YoY but an increase of 9 per cent QoQ. Gross sales and profit before tax for the quarter were impacted due to down stocking in trade channels in anticipation of the GST regime.” Operating margins of Sanofi also contracted.

“Ebitda for the quarter fell by 20.3 per cent YoY with a corresponding margin contraction of 509 basis points. Ebitda margin for the quarter stood at 19 per cent. This margin contraction was driven by adverse movements in inventories,” Arihant Capital Market said.

Fitch Ratings expects the overall impact of GST on the pharma sector to be neutral but for the transitory issue of destocking, which could be resolved in the short term as the government announced that it would allow the sale of pre-GST inventory for up to three months.

Some pharmaceutical companies reported availability issues in the supply chain in the run-up to GST implementation.

“This was due mainly to the reluctance of small retailers and dealers to hold stock, as they wanted to avoid any potential losses arising from uncertainty surrounding how unsold stock accumulated before GST will be treated. We see this as a transitory issue which is likely to be resolved in the short-term, as the government announced in early July that it would allow the sale of pre-GST inventory for up to three months,” Fitch Ratings said.