Any potential tariffs on pharmaceutical imports into the US are unlikely to impact the credit profiles of Indian firms except for a short-term pricing blip, according to a report by India Ratings and Research (Ind-Ra).
The report stated that the US generics market contributes around 35 per cent to the total revenue of the leading Indian pharma firms.
However, this proportion has been steadily declining over the past few years due to price erosion and its impact on margins and returns.
Despite this, the US markets rely heavily on Indian generics due to their low-cost, high-volume nature, making it challenging to replace them with the higher-cost local production.
The report added that any tariff rate would shift much of the cost to consumers, with drugmakers facing a short-term impact for the initial three to four months due to contracts, pricing, and efforts to maintain market share.
Currently, the pharmaceutical sector is exempted from reciprocal tariffs. However, Ind-Ra anticipates this exemption may be temporary with the segment being probed under Section 232 of the Trade Expansion Act, 1962 as well as changes in tariff policies and negotiations between several countries and the US government being in progress.
Section 232 deals with the law that gives the US President the power to restrict imports of products that are found to threaten to impair national security.
The report stated that the sector remains fortified by a diversified business model and a sound financial position, factors that are expected to provide a buffer against future trade challenges.
Vivek Jain, director, corporate, Ind-Ra, said while most Indian pharma players have a generic business in the US market, earning thin operating profitability, Indian companies have a diversified revenue model and a healthy balance sheet.
“Most companies have sufficient headroom under debt covenants and diversified funding sources.
"Hence, any material impact from future tariffs to Indian pharma is highly unlikely,” he added.
The agency highlighted that the tariff threat comes at a time when the US is moving towards drug pricing reforms aimed at reducing prescription drug prices through faster generic approvals and importing cheaper drugs.
Indian firms, with their extensive number of abbreviated new drug application (ANDA) filings and second highest USFDA-approved facilities outside the US, are strategically positioned to capitalise on these new policies.
According to the report, Indian companies accounted for 35 to 40 per cent of all ANDA approvals from FY14 to FY24.
Despite this, Indian drugmakers faced stagnant growth in the US, with a compound annual growth rate of just 4.2 per cent between FY17 and FY25 prompting firms to diversify into higher margin segments such as branded generics, biosimilars and niche therapies.
The Ind-Ra report stated several Indian pharma companies are shifting focus from the heavily competitive US generic market to developed markets such as Europe, Japan, and other semi-developed markets such as Africa, Latin America, and Southeast Asia.
“The shift is driven by their growth potential and evolving healthcare, aiming to mitigate the impact of pricing pressure, increased regulatory scrutiny and potential trade barriers,” it added.
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