Pharma stocks that you can keep in your portfolio despite US tariff woes

Tausif Shaikh, India analyst for pharma and healthcare, BNP Paribas India, prefers domestic-focused companies like Torrent Pharmaceuticals, and JB Chemicals and Pharmaceuticals in the sector

Pharma stocks: Global brokerage firm BNP Paribas has picked Torrent Pharmaceuticals, and JB Chemicals and Pharmaceuticals as top bets within the pharmaceutical sector following the exemption of the industry from the reciprocal tariffs imposed by US President Donald Trump.

 

On Wednesday, April 2, President Trump announced new reciprocal tariffs targeting several trading partners, including a 27 per cent "discounted reciprocal tariff" on imports from India. However, according to a fact sheet released by the White House, pharmaceuticals were exempted from these higher tariffs.

 

The exemption from reciprocal tariffs, Tausif Shaikh, India analyst - pharma and healthcare, BNP Paribas India, said, should be seen as a positive readout with no negative surprises. "We continue to prefer domestic focused companies like Torrent Pharmaceuticals, and JB Chemicals and Pharmaceuticals in the sector," Shaikh said. 

 

That said, at the current market price of ₹1,579.80 apiece, Shaikh sees nearly 55 per cent upside potential on JB Chemicals & Pharmaceuticals shares and sets the price target at ₹2,446 apiece.

 

For Torrent Pharma, Shaikh has set the target price at ₹3,710 per share, up 14 per cent from the CMP of ₹3,247.7 apiece. 

 

Uncertainty seems overdone in the near-term; expect relief rally

News flow related to the possible imposition of tariffs has led to higher stock price volatility across the sector over the last few months. With the sector exempted from reciprocal tariffs currently, Shaikh expects a relief rally for the Nifty Pharma Index after its 11 per cent year-to-date decline.

 

“However, we wait for more details and note that higher tariffs are not completely ruled out for the future on pharmaceuticals. Assuming a 10 per cent tariff is imposed on pharma products, we expect the impact to be negligible,” Shaikh said.

 

He believes Indian generic companies will bear only a small proportion as they operate at a low margin compared to innovators.

 

With a 10 per cent baseline tariff cost, Shaikh sees a 1-2 per cent impact on FY27E Earnings before interest, taxes, depreciation, and amortisation (Ebitda) in the base case. For 7 coverage companies, which have 17-45 per cent revenue exposure to the US for FY27E, he builds a scenario analysis, with them absorbing 20 per cent/30 per cent/40 per cent of the cost. 

 

"Assuming a baseline 10 per cent tariff cost, in our bear case scenario (40 per cent cost absorption), we see a 1-2 per cent adverse impact on our FY27E Ebitda," Shaikh said. 

 

He expects Aurobindo Pharma, Zydus Lifesciences, and Dr. Reddy's Laboratories to see the highest impact, while Divi's Laboratories is likely to be the least impacted.