Indonesian pharmaceutical companies will face a severe margin squeeze over the next two quarters.

Amidst rupiah depreciation volatility, Bank Indonesia has yet to expand currency protection tools to cover trade financing. This exposes businesses reliant on imports. KLBF, Southeast Asia’s largest pharmaceutical firm by market cap, will be hit hard because it imports roughly 90% of its active pharmaceutical ingredients (API). Chinese and Indian suppliers, which account for two thirds of KLBF’s API imports, will gain greater pricing power as a weaker rupiah pushes up KLBF’s import costs. KLBF typically holds three months of imported inventory, similar to the two-to-four-month buffer it maintained during the rupiah depreciation episodes of 2015 and 2018 — those reserves are about to be sorely tested.