Can Cheap Medicines Stay Cheap Indias Hotel Growth Story Daily Brief 486

TITLE: Can cheap medicines stay cheap? | India’s hotel growth story | The Daily Brief #486 CHANNEL: Markets by Zerodha DATE: 2026-06-15

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In today’s episode of the daily brief, we will be breaking down two important stories. The first is about when should the prices of medicines go up and the second one is how Indian hotels are performing financially. Welcome to the daily brief where we cut through the noise and give you the real insights into the world of finance and business. I’m your host Akanga and today is Monday 15th of June.

So let’s start with the first story. So when should one increase the price of medicine? The thing is the government just did something that at first glance would seem inhumane. It agreed to let the prices of two cancer drugs rise by as much as 50%. The drugs are cisplatin and caroplatin. Both are made from platinum based raw material. They are firstline chemotherapy drugs used to treat ovarian, cervical, lung, breast, head and neck and testicular cancer. These drugs are also cheap. A 10 mg vial of caroplatin is capped at 61.1 rupees. In the last few months though, they started disappearing from hospitals including as Delhi and Tata Memorial Center. This is why the government invoked an emergency clause to let its manufacturers charge more. It was better to let a drug cost slightly more than to have none of it in pharmacy shelves.

This tells you why a price cap can be a trade-off. On one hand, the cap did exactly what it was designed to do. It held the price flat. Only that itself became the problem. To be perfectly honest with you, some of this is speculation. It isn’t fully clear how much of this is caused by shortage or the price cap itself. There are other things happening at the same time. Platinum has become scars globally. The rupee is weak. Import permits are slow and these drugs are hard to make and are produced only by a few companies. Manufacturers claim production has become unviable at capped prices. But it isn’t entirely clear to us exactly where this chain breaks down. With that caveat aside, however, this episode is a demonstration of how India’s drug pricing system works, where it breaks, and the two very different problems it is trying to solve with one tool.

There’s a body called the National Pharmaceutical Pricing Authority or NPA. It was set up in 1997. It is usually described as the agency that caps drug prices. That is only half of its job. Its mandate is to keep essential medicines both affordable and available. Its price regulation, as the government itself notes, should not make drugs disappear. Those two goals, however, are in constant tension. That’s where our story starts.

A drug’s price is determined by a rule book, the drugs price control order. This was released in 2013. This order puts every medicine into one of the two buckets. One, there are scheduled drugs which include 900 formulations on the national list of essential medicines such as key antibiotics, insulins, hard drugs and cancer drugs. These all have a fixed ceiling price. Everything else is non-scheduled. These are left to the market but with a limit. A company cannot raise their price by more than 10% a year. So how do we decide the price ceiling for scheduled drugs? Since 2013, India has used market-based formula. The NPPA takes every brand of a medicine with at least 1% market share, averages the price at which they’re available to the retailer and then adds a 16% margin. That average becomes the cap. Anyone priced above that must cut down within 45 days. Those already below the cap, however, cannot jump up. They keep their prices low. There’s a strong case for this system. Indians still pay a large share of their health costs out of pocket. The picture is changing though. Out of pocket spending has fallen from over 64% of all health spending in 2013 2014 to roughly 43% in 2022 23. But it remains high in a confusing market where distressed and sick patients must choose between dozens of brand names with very different prices. Completely free prices can hurt patients. A cap brings genuine savings with it. The government claims its essential medicine ceilings saved consumers about 3,82 cr rupees by late 2025. Anti-cancer drugs alone account for around 295 crores a year. A clear example of these savings came in 2017 when MPPA put price caps on stents, the small mesh tubes used to open blocked arteries. Before that, hospitals were marking them up as much as 654%. After the cap kicked in, the prices fell up to 85%.

The thing is prices aren’t static. With time, however, prices change and with that the ceiling moves as well. It is revised once a year in April in line with the wholesale price index. That’s where the problem actually arises. The WPI measures how fast prices are rising across the whole economy from steel to soap. It does not tack the cost of any single drug. In some years, there’s a genuine increase. In some, there isn’t. In 2024, overall prices increased by about 0.0055%. Which is to say, they basically remained flat. With that, the ceiling price of drugs stayed still as well even while the actual cost of making it climbed much faster. But there can come a point where the cap becomes too wide and the drug is no longer worth manufacturing. Then the system can reach for a backup. This backup is paragraph 19 which lets the government override the formula and reset any drugs prices up or down in extraordinary circumstances. This requires paperwork though. There’s an online system where companies file everything from applications for new drug prices to annual revisions to quarterly production data. If a firm wants to stop making a scheduled drug, it must give 6 months notice and if needed, the government can ask it to keep production up for a year. If a company thinks NPA set a price wrong, it can file a formal review with the department of pharmaceuticals. This is what happened with cysplatin and carboplatin. The medicines became too expensive to sell. One maker, Naprod Life Sciences, told Business Standard that platinum had roughly doubled in cost just in a year from about 2,000 rupees to nearly 5,000 rupees a gram and it could only be imported with a special permit which takes months to get. This is what made the drugs unviable to produce. The NTPA received request from the industry to raise prices on 82 formulations because of raw material costs and currency swings. The committee approved only four cis platin caroblatin and two anti-tanetas injections.

This illustrates a problem that most price caps come with. They can distort the market. If something becomes too expensive or too inconvenient to sell, you can’t pass any of it to the customers. You might just check out of the market or try clawing profits out in other ways. The NPPA caps the prices of finished medicines. It has no control over the prices of inputs in making it. However, the active ingredient, the solvents, the packaging, the import duty, the exchange rate. They have no control over any of this. The price ceiling can sometimes fall below the real cost of production and then it makes no sense to keep making the drugs at a loss. So, companies can make less or stop altogether. This isn’t just a matter of these cancer medicines. The same thing repeats itself. In 2025, for instance, small manufacturers told NIT Aayog that unsustainable ceilings had pushed quality drugs out of the market. They pointed to cotrimoxazole, a basic antibiotic as becoming uneconomic to produce. A year later, a Himachel industry body representing more than 500 units said raw material, solvent, and packaging costs had jumped 200 to 300%. or consider the price cap on stents. Foreign manufacturers claimed that the capped prices was below their cost of production. Some tried to pull their newest tents out of the market. Meanwhile, there were clinical distortions. Hospitals seeing their margins being squeezed ramped up non-transparent charges like consumables or room charges. On the other hand, with stents now cheaper, they began pushing everyone to stentbased procedures whether or not other options like a bypass would have helped the patient. To be fair, it isn’t that price gaps always cause shortages. A 2024 government commissioned study of stances and knee implants, for instance, found that supply and demand actually rose after the gaps. But the pattern shows up consistently enough. The government routinely finds itself reaching for emergency procedures to increase rates. In October 2024, for instance, NPPA used this same paragraph 19 to raise prices by 50% on drugs for asthma, tuberculosis, gluccom, and thalismia. It had done something similar for smaller set of drugs in 2019 and 2021. Each time the goal was to stop manufacturers from leaving. If a system keeps needing emergency exceptions, what does that say about its normal rules? Beyond the obvious, does price control achieve their original goal of actually improving access? However, the research on this is mixed. Cheaper medicines aren’t always more available medicines. Price caps can reduce prices, but access isn’t a matter of price alone. It’s also a matter of availability, prescribing behavior, and insurance and procurement coverage. These things don’t always work in a straightforward way and on the way these cause all sorts of issues. The more of a company’s sales sit in essential medicine’s list, the more of its lives on volume rather than margin, growing by selling more units, not by charging more. Many companies try to get around this through cross subsidization. A large diversified firm can sell a capped essential drug at a thin margin or even at a loss and cover it with profits from exports, specialtity and patented products and also chronic disease brands that face no cap. A small or midsized maker with a narrow portfolio has nothing to cross subsidize from. So when prices rise, big firms absorb the hit while small ones pull out completely. A center for global development study found that for instance that wild price caps lowered prices that came at a terrible cost. It wiped out many small local generic makers. Those firms were often the only suppliers to ruralarmacies. So the savings for city buyers showed up as stockouts for the rural and poor. At the same time, larger companies start gaming the formula because the ceiling is an average of prices before the control kicks in. Researchers studying the meta foreign market found firms raising prices just before NPA took its snapshot pushing the average up. Often price gaps don’t even increase the access of the very medicines that are capped. Some studies of anti-cancer drugs in fact found a drop in use of the controlled drugs in some cases. But why is that? As another paper found, when their margins were squeezed, companies pulled their sales rep off the cheap regulated drugs, deploying them to push costlier but unregulated substitutes instead. That shift hit prescriptions from less educated doctors treating poorer patients the hardest, hurting the very people the policy was meant to protect. This also pushes the capital for drug development away from regulated medicines, starving research budgets for the very medicines price controls protect. Companies instead move money and attention towards bioimilars, specialty drugs and export markets where prices are set by the market rather than by the government. Multinationals meanwhile have pushed to exempt patented drugs from price control. This divergence has caused a split within the pharmaceutical industry. Hospitals and contract manufacturers are pulling ahead while plain generics struggle.

There are many reasons to protect customers from a large confusing industry which they only see when their health or even their lives are in danger. Few of those however applied to a 61 rupee wild whose problem is not greed but the cost of a metal. Sis platin and caroplatin are decades old generics. If even these are becoming unviable, there’s a genuine problem in our system. The price hike on cysplatin and caroplatin now buys time. But that time will be wasted unless we can build a system that can discover problems before their shelves are empty. Let’s move on to the next story. Indian hotels find comfort at home. The crisis at straight of hormos has undoubtedly been bad for most businesses with international exposure. Airlines have been rerouted. Large corporate events called meetings, incentives, conferences and exhibitions, this is collectively called mice by the way, were cancelled as the region became inaccessible. ICL which runs the Taj Hotel estimated the conflict to cost it about 40 to 45 crores in lost revenue in the quarter. And yet, ICL called this its 16th consecutive quarter of record performance with revenue, profit, and IBITA all roughly up 14 to 15% from a year ago. So, what led to this outperformance? The short answer is that even as international markets fell away, domestic demand held its ground. It didn’t replace everything that was lost, but it was large enough to hold the sector up. To get into the long answer, let’s first understand how hotels make money and then see what happened to the industry that surrounds them.

A hotel earns in two ways that is by filling the available rooms and charging more for them. The number that combines both is revenue per available room which clearly depicts whether a hotel is actually doing well because it captures both how full the hotel is and what guests are paying. In this quarter, due to foreign cancellations, occupancy at hotels dependent on international guests took a hit. But the premium hotels didn’t need to discount because domestic demand was strong. For premium hotels, Indian travelers stepped in where foreign guests had left. However, mid-market hotels that depend more heavily on corporate bookings had a harder time. As we will see later, the first half of the quarter ran on business. Think foreign government delegations, corporate conferences, a packed events calendar. Weddings were also a significant driver. And by March, when the conflict hit hardest and international bookings dried up, it was leisure travelers who kept hotels busy. Basically, Indians driving to hill stations, booking beach resorts, and visiting religious destinations. The domestic traveler trend didn’t start in March, though. It had been growing for years before the conflict gave it an extra push. Make my trip India’s largest online travel platform reported FI26 gross bookings 10.4 billion which is roughly 97,800 cr rupees 10.4% in constant currency. Meanwhile, Yatra’s hotel room nights booked grew over 36% in the quarter compared to a year ago. On the hotel side, ICL’s standalone repar grew 12% in the quarter across hotels already in operation before the conflict. This is part of a much broader shift in how Indians travel. A survey by Alliance Partners and Ipsos found that 60% of Indian travelers planned to holiday within India in the summer of 2026. More branded hotels have also opened in smaller tier 2 markets in recent year like the lemon tree chain in Orurangabad, Jammu and Deharum and IHCL’s budget brand Ginger that ensures good options while traveling across India. Part of the shift is also about cost. International airfares rose sharply as the conflict disrupted routes through West Asia which handles a large share of India’s outbound flights. For many households, a trip within India simply became the cheaper, easier option.

If this demand trend were a single quarter story, companies wouldn’t be spending the way they are. And India simply doesn’t have enough quality hotel rooms. According to the Hilton, the country has roughly one hotel room for every 3,000 people compared to one for every 60 in the US. and India’s hotel construction pipeline reached a record 96 projects representing around 1 lakh 18,000 additional hotel rooms. This shortage of supply has so far created pricing power that benefited the revenue of hotel operators. So hotel companies are building. ICL ended the year with 630 hotels, around 64,000 plus keys, and a pipeline of nearly 31,000 keys, growing mostly by managing hotels for other owners rather than building it themselves. Lemonree signed 55 new hotels this year and is splitting into two companies to help manage the expansion better. One will own the hotel buildings, the other will run them. The management business earns fee without owning the property. So, it needs less capital to grow. EI is adding both hotels it will own outright and hotels it will manage for other owners, paying for the expansion from its own earnings rather than borrowing. Chalet which owns and operates most of its hotels directly crossed 5,000 total rooms that are fully built or are undergoing construction and they are spending roughly 3,000 crores on new properties over the next 3 years. Its diversification into office buildings helps it hedge against risks in travel. Even international brands like Marriott, Hilton and Intercontinental Hotel Groups are all aggressively expanding in India with a notable focus on religious and spiritual destinations. Marriott says that about 11% of its roughly 220 hotels in India cater to temple visitors and Hilton says around 15% of its India pipeline is near spiritual destinations. As per JLL, total investments across India jumped 61% yearonear to 567 million in 2025, up 67% from the year before.

Not every company had a good quarter though since various hotels operate in very different parts of the market. Their problems were also different. IHCL runs premium and luxury properties under the Taj and Vivanta brands. AIH operates the ultra luxury Oberoy and the Tridentend hotels catering heavily to high-spending foreign visitors. Chalet owns and operates upscale business hotels concentrated in Mumbai. Clementry is mid-market catering more to domestic corporate and leisure travelers across a widespread of the city. Among them, Chalet had the hardest quarter. A large share of its hotels are in Mumbai and Mumbai had a weaker quarter than most Indian cities. Occupancy across Chalet’s portfolio fell nearly 8 percentage points and the rate increase wasn’t enough to compensate. So overall earnings per available room dropped. March was particularly damaging because Dubai and Abu Dhabi are major destinations for corporate reward trips and company conferences. The most popular window for these events is few weeks after Ramadan ends when companies fly employees out for annual incentive programs. That window shrunk this year right when the conflict made those trips impossible. The entire season was wiped out in one month. EI had a weak January for different reasons. North India’s winter air quality which regularly draws negative attention kept some visitors away and foreign tourist arrivals were also softer that month. On top of that, Indigo’s grounding of all flights for a few days in December had already softened bookings in January, especially for Lemon Tree’s airport hotels. When corporate bookings dropped later, Lemon Tree had to lower retail prices to fill rooms. Thomas Cook’s CEO Mahesh Alier noted that Indians traveling within India or on short trips abroad don’t fully replace the money lost from canceled longhaul travel because those are much more expensive trips. For hotels, this matters less since a domestic guest and an international guest often pay similar rates at the same property. Nonetheless, there is a gap. Some disruptions were one-off. Wedding calendars shift year to year. January air quality is a recurring seasonal pattern in North India.

The real question going forward is whether domestic travel is strong enough on its own to sustain the sector if international demand stays weak for longer. If things in West Asia settle and international flights recover, hotels will depend mostly on foreign visitors will get a boost on top of what domestic demand already provides. If it takes longer, the sector will depend on whether Indians keep traveling within the country and at what pace and whether corporate travel recovers as uncertainty fades. An RBI consumer confidence survey from June showed that household spending sentiment weakened significantly in the month of May. When people feel less wealthy, travel is usually one of the first thing they cut back on. Indian domestic travel may have become large enough to carry the hotel sector through global disruptions. The chains building aggressively right now are betting that this is a permanent shift. The bet may be right, but only if domestic demand stays strong after foreign travel normalizes and new supply starts arriving. Let’s get into the tidbits for the day. JSW Ecommobility bid across all five cities in the government’s 6,230 electric buses tender, undercutting Tata Motors, Electra, JBM, and Ashoken, finishing second or third lowest in four cities despite winning no orders. The government capped retail diesel purchases at 200 L per vehicle daily and barred industrial and commercial users from buying fuel at retail pumps for 90 days. Addressing bulk diversion driven by the 95.2 rupees versus 134.5 rupees retail bulk price gap. Sebi has proposed that exchanges with no trading activity in a stock adopt the closing price from the most active exchanges preventing price divergence in illlquid scripts. Public comments on this are invited until July 2nd. This was the daily brief by Zeroda. I hope you liked the video. Let us know your take in the comments. See you on the other side. Disclaimer, this content is forformational purposes only. None of the stocks, brands, or products mentioned are recommendations or endorsements.