API Costs Soar Due to Petrochemical Prices

The ongoing conflict in West Asia has severely disrupted global supply chains, driving up prices for essential petrochemical solvents and intermediates. This crisis has hit India's bulk-drug manufacturing sector, revealing major vulnerabilities and creating a clear difference in how companies can handle the impact.

Global crude oil prices have become highly volatile, with Brent crude reaching $103.61 per barrel on March 24, 2026, due to significant supply concerns from the West Asia conflict. This surge directly leads to higher costs for petrochemicals, the basic ingredients for many Active Pharmaceutical Ingredients (APIs). Some manufacturers report a 200-300% rise in key inputs, while paracetamol API prices jumped from about ₹250 per kg to ₹450 per kg in just weeks. This inflation is worsened by nearly doubled global shipping costs and longer transit times as vessels reroute away from critical trade routes. API makers face manufacturing costs rising by a potential 25% for power alone.

Big Drugmakers vs. Small: A Stark Divide

The crisis highlights a significant divide within India's pharmaceutical sector. Larger, integrated companies like Dr. Reddy's Laboratories and Divi's Laboratories seem better equipped to handle this difficulty. Dr. Reddy's, for example, has a conservative debt-to-equity ratio of 0.14 as of March 2025, with a P/E ratio around 18-19. Divi's Laboratories has an even stronger financial position, with a debt-to-equity ratio of about 0.006 and a P/E ratio around 65-69, signaling market confidence in its growth and profitability. In contrast, smaller manufacturers face immense pressure. Kilitch Drugs (India) Ltd. has a debt-to-equity ratio around 0.24. While not heavily indebted, its P/E ratio of 22.37 suggests less flexibility for profit margin reduction compared to larger rivals. The inability to pass on soaring API costs to customers due to government price controls, such as the Drug Price Control Order (DPCO) for paracetamol tablets, severely squeezes margins, especially for smaller companies and Contract Development and Manufacturing Organizations (CDMOs).

Why India Relies So Heavily on Imports

India's pharmaceutical industry's significant reliance on imported APIs and intermediates, particularly from China, represents a major weakness. Approximately 70% of APIs used in India come from China, a dependency built over years of focusing on low costs. In FY 2024-25, India imported roughly 73.7% of its $4.35 billion worth of APIs and intermediates from China. This heavy reliance became clear during China's COVID-19 lockdowns, which caused paracetamol API prices to more than double from ₹320 to ₹650 per kg. Past price surges during China's environmental regulatory crackdowns also highlight this vulnerability. Although many firms claim diversified suppliers, these "alternatives" are often in the same region, providing a false sense of security.

Smaller Firms Face Crisis as Costs Rise

For smaller pharmaceutical companies and CDMOs, the combination of rising input costs and fixed output prices creates a difficult situation. The Himachal Drug Manufacturers Association (HDMA) has warned that current cost increases are making production unprofitable, risking the supply of essential medicines. The industry faces potential shortages from hoarding and collapsing profit margins for firms unable to absorb higher costs. Unlike Divi's Laboratories' minimal debt leverage or Dr. Reddy's conservative 0.14 debt-to-equity ratio, smaller players may find their finances strained if the disruption continues. While large companies might manage input cost fluctuations due to strong pricing power and financial buffers, smaller entities risk production halts and possible bankruptcies if the West Asia conflict and resulting supply chain issues persist.

What's Next for India's API Sector

The immediate future for India's API sector depends on how long the West Asia conflict lasts and how the government responds. Industry groups representing smaller manufacturers are calling for price caps on raw materials and a crisis task force. Government Production Linked Incentive (PLI) schemes aim to boost domestic API production, but these are long-term solutions and don't help with the current emergency. The sector urgently needs to speed up real supply chain diversification, moving away from relying on single geographic areas to build greater resilience against future geopolitical shocks and fluctuating commodity prices.