Investing Bites

Current situation in a nutshell (Based on my discussion with Industry participants):

• Relevance of China in India Pharma context:
  • 2/3^rd of API and KSM are imported from China (Over the years, share has gone up by 4-5% YoY)
  • Therapies where China holds Leadership (in return commands pricing movement)
    • Vitamins
    • Steroids
    • Antibiotics
  • For the bulk commodity APIs (High volume, low value), >50% of market share is with China
• Inventory Levels:
  • Sufficient Inventory till April (Typically, in API – RM Inventory days (of sales) ~70-90 days)
  • Companies with urgent supplies requirement airlifting RM from China (This mode of transport is expensive and requires extensive govt. approvals)
    • Example – Granuels India & Cipla
• Pricing:
  • Generally, prices across therapies have shot up by 30-40% in China
  • In India, the prices of the same APIs have gone further up by 20-30% from Chinese pricing levels
• Challenges:
  • Manpower attendance a) Factory Level b) Ports c) In road logistics – 10-20% attendance across segments
    • Example – At JNPT, labours have given notice to not work for 10-15 days
  • Manufacturing – Overall utilisation Levels are at 30-40% (RM is available but no manpower to run the plant at optimum capacity)
• Categorisation of APIs:
  • High Risk: Dependence on China is High + Manufactured in Infected areas (Vitamins and Steroids)
  • Medium Risk: Dependence on China is Medium + Not manufactured in the infected areas
  • Low Risk: Alternatives outside China available in ample
• De risking from China
  • Upfront Capex + gestation period to achieve scale is a big entry barrier – China to continue holding Leadership position on Manufacturing side
  • Ideally, post the crisis, de-risking will happen but very slowly towards – India, Taiwan and South Korea

Stay Safe!

Cheers – Anuj Khandelwal