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The National Pharmaceutical Pricing Authority (NPPA), invoking Paragraph 19 of the DPCO, 2013, has implemented a 30% trade margin cap on 137 nonscheduled anti-cancer drugs, with the revised MRP taking effect on 9-Nov-26. Designed to improve patient affordability, per the NPPA, this move is expected to drive down retail prices for critical cancer medications by up to 70%; this would lead to annual savings of Rs25bn for the general public. NPPA has also reclassified hospitals/medical institutions as stockists/distributors so as to pass on benefits of any steep discounts that such institutions might enjoy wherever drugs are directly procured from manufacturers, especially in case of high-value oncology therapeutics. Per the new calculation, hospitals are restricted to a 42.86% mark-up over their direct procurement cost. While the direct impact of this order is likely to be limited for earnings of our healthcare coverage, the pending writ petition with the SC, in our view, remains a key overhang. Further, any extension of such an order toward other non-scheduled drugs or consumables is likely to disproportionately impact the ramp-up trajectory of developing units owing to higher mix of medical cases (vs surgical cases)

NPPA enforces 30% trade margin cap; hospital margins likely to be squeezed

On 16/17-Oct-26, the NPPA initiated Trade Margin Rationalisation (TMR) across 137 nonscheduled anti-cancer molecules. The regulatory intervention caps trade margins at 30% of the MRP (exclusive of GST) that translates into a maximum markup of 42.86% on the Price to Stockist/Distributor (PTS/PTD). The Directive applies universally to generic, branded, and patented oncology formulations across all dosages and combinations. For institutional distribution channels, direct-to-hospital supplies are now classified as distributor sales for pricing calculations, structurally squeezing historical hospital pharmacy margins. Effective 9-Nov-26, formulators must roll back any MRP exceeding the computed ceiling, while pre-existing lower prices cannot be raised. The order introduces stringent compliance risks and supply-chain lock-ins: manufacturers must file revised price lists via the IPDMS portal within seven days to mitigate overcharge penalties and are prohibited from reducing production volumes without prior NPPA approval or discontinuing product lines without a mandatory six-month advance notice.

Margin cap on onco drugs for now; broader drug-pricing risk a key monitorable Based on discussions with hospital chains, we expect limited earnings impact from the onco trade-margin cap (2-3% cut on EBITDA). However, a second-order impact looms large, as drugs take a larger share of patient billing in non-surgical procedures (Exhibits 4 and 5), which would disproportionately impact ramp-up at developing units as hospitals focus on occupancy rather than case mix. Further, given that the SC has asked the Central Government to review pricing across the entire drug market, any capping of trade margins on all drugs (and eventually consumables) could cause a material impact on earnings. Any further restriction on pricing/regulations on the sector at large may trigger a de-rating; we, however, do not anticipate this for now. Hospital stocks have already corrected ~10-15% post SC intervention (large chains have seen FY28 EV/pre-Ind AS EBITDA multiples contract by ~10-15% to 20x). We retain our rating/TP on KIMS (BUY/Rs850), Park (BUY/Rs375), Medanta (ADD/Rs1,500), Max HC (ADD/Rs1,100), and Rainbow (ADD/Rs1,450).

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