The Hindu Business Line : VAT, strike add to drug cos' woes

PHARMACEUTICAL companies have always had a love-hate relationship with chemists and druggists. The value-added tax issue has put another spoke in their wheel. It is expected to put immense pressure on sales reflecting in the companies January-March quarter results. Added to this is the logistical problems created by truckers' strike.

According to retailers, there has been a substantial fall in the offtake of drugs in the past couple of months. This is expected to register a 15-20 per cent in fall in sales across the board in the pharmaceutical sector, analysts said.

Says Mr Dilip Mehta, President, All India Organisation of Chemists and Druggists (AIOCD), "the offtake was abysmally low particularly during March as we were unsure of implications of the VAT. However, with the extended deadline of July 1, we expect some of our demands to be considered by the Government especially re-categorising drugs/medicines as essential commodity." The VAT on drugs would be about 12.5 per cent at the present categorisation, but once re-categorised, it could be about 4-5 per cent.

Wholesalers do not want to buy and stock as some State Governments' take up to five years to repay the sales tax already paid by them. "We have already paid the government sales tax for the current stock. However, due to a financial crunch, most state governments have expressed their inability to repay the tax on implementation of VAT. The repayment could take anywhere between one and five years," said a wholesaler.

The nationwide indefinite strike by truckers that started on April 14 has compounded the problem even further. "The projections for the last quarter for pharma companies especially multinationals will go haywire as reports of a large scale logistics problem become imminent. Indian companies can bank on exports to cover up for a drop in domestic sales. But multinationals could be facing a daunting task," said an analyst at a domestic brokerage firm.

The situation is so bad that if the strike goes on for 2-3 days more, stockists will run out of even life saving drugs. "It is a critical situation especially in districts and towns outside metros. There is a huge shortage of drugs and if the strike continues for more than two to three days, even life saving drugs would be unavailable,'' said Mr Mehta. A spokesperson from Nicholas Piramal India Ltd said that there does not seem to be an immediate problem as stocks especially for CNS (Central Nervous System) drugs are adequate. However, the incidence of retailers not being able to pass on discounts to consumers especially in the life saving drugs segment could be high.

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VAT, strike add to drug cos' woes