DRUG INVENTORY STILL BELOW PRE-GST LEVEL
Inventory with distributors is unlikely to touch pre-GST level as trade channels look to reduce working capital requirement
In the run up to the implementation of GST, inventory level of medicines with distributors fell to 17 days at end of June from 40 days at end of May. This increased to 30 days at end of September, according to AIOCD-AWACS, the market research wing of All India Organisation of Chemists and Druggists. GST came into effect from July 1.
The reduction of inventory to 30 days will however not lead to a shortage of medicines. “Restoration of inventory levels to the pre- GST level may not happen though there could be a gradual increase in inventory days,” AIOCD-AWACS director Ameesh Masurekar said.
A reduction in inventory level would mean lower working capital requirement. The halving of inventory levels in July did not lead to disruptions in medical supplies and hence distributors may not hold inventory of 40 days.
An another industry source said that in the last couple of months, stockists have been focusing more on compliance rather than business growth since GST rollout.
With the exception of lifesaving drugs and a few other products, medicines have been brought under 12 per cent tax slab, which is higher than the earlier tax rate of 9-10 per cent. In response, stockists cut down the inventory level to minimise the impact of tax increases. Alongside, drug companies offered higher incentives and increased the credit period ensuring adequate stock in the market.
While trade margins in real terms remain same (around 1620 per cent for retailers and 8-10 per cent for distributors) an increase in tax outgo has resulted in reworking of purchase and sale prices. “There has been an impact on trade margins in absolute terms as companies have not increased the maximum retail price of pharmaceutical products. Stockists may have reduced offtake to lower working capital requirements,” said Kirti Oswal, partner, BSR & Associates.
According to a Quintiles IMS survey published in August, both distributors and chemists believed that the teething problems of GST implementation would last one to three months and normalcy would be restored thereafter.