Budget 2013 to impact negatively Sun Pharma, Cadila In Sikkim
source: the economic times
NEW DELHI: Negatives outweigh positives in the Union Budget
2013 for the pharmaceutical sector as increase in basic tax structure will
materially impact the performance of a few players in the sector, Sharekhan said in a report.
The proposal of the Union Budget 2013 to increase the basic excise duty and extend the applicability of alternate minimum tax (AMT) to units controlled by partnerships under certain conditions are some of the key provisions which would materially impact the performance of a few players in the pharmaceutical (pharma) sector.
The provisions related to weighted deduction of 200% for in-house research and development (R&D) expenditure have been extended for another five years.
A higher allocation of funds for building infrastructure in rural areas and concession in customs duty on import of medical devices including raw materials for medical devices are some of the key bounty for the sector.
Sun Pharma and Cadila Healthcare to take steeper impact among peers: These proposals are set to increase the tax burden for companies like Sun Pharmaceutical Industries (Sun Pharma; 59% contribution of profits from partnership-based undertakings), Cadila Healthcare (58% of profits being contributed by partnered undertakings) and Torrent Pharmaceuticals (Torrent Pharma; undisclosed profit from partnership based undertakings), as they have manufacturing units in Sikkim which are being controlled by partnership firms floated to by-pass taxation meant for only companies.
Sharekhan revises earnings estimates, target prices for Sun Pharma, Cadila Healthcare and Torrent Pharma to factor the new provisions proposed in the budget, which would lead to an incurrence of a higher effective tax rate for the mentioned companies.
Accordingly, Sharekhan has revised downwards the earnings estimate for Sun Pharma by 10% and 9% for FY2013 and FY2014 respectively while Cadila Healthcare's earnings estimates have been reduced by 5% and 6% for FY2013 and FY2014 respectively.
Torrent Pharma, which started its partnership based manufacturing units in FY2011, is likely to have a marginal impact of 2-3% in FY2013 and FY2014 assuming a 25% contribution to consolidated profits from its partnership firm based in Sikkim.
The proposal of the Union Budget 2013 to increase the basic excise duty and extend the applicability of alternate minimum tax (AMT) to units controlled by partnerships under certain conditions are some of the key provisions which would materially impact the performance of a few players in the pharmaceutical (pharma) sector.
The provisions related to weighted deduction of 200% for in-house research and development (R&D) expenditure have been extended for another five years.
A higher allocation of funds for building infrastructure in rural areas and concession in customs duty on import of medical devices including raw materials for medical devices are some of the key bounty for the sector.
Sun Pharma and Cadila Healthcare to take steeper impact among peers: These proposals are set to increase the tax burden for companies like Sun Pharmaceutical Industries (Sun Pharma; 59% contribution of profits from partnership-based undertakings), Cadila Healthcare (58% of profits being contributed by partnered undertakings) and Torrent Pharmaceuticals (Torrent Pharma; undisclosed profit from partnership based undertakings), as they have manufacturing units in Sikkim which are being controlled by partnership firms floated to by-pass taxation meant for only companies.
Sharekhan revises earnings estimates, target prices for Sun Pharma, Cadila Healthcare and Torrent Pharma to factor the new provisions proposed in the budget, which would lead to an incurrence of a higher effective tax rate for the mentioned companies.
Accordingly, Sharekhan has revised downwards the earnings estimate for Sun Pharma by 10% and 9% for FY2013 and FY2014 respectively while Cadila Healthcare's earnings estimates have been reduced by 5% and 6% for FY2013 and FY2014 respectively.
Torrent Pharma, which started its partnership based manufacturing units in FY2011, is likely to have a marginal impact of 2-3% in FY2013 and FY2014 assuming a 25% contribution to consolidated profits from its partnership firm based in Sikkim.
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