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Indian pharma sector poised for 8-10% growth this fiscal: CRISIL
Industry News- Sep 20,24
Following a successful year with approximately 10% growth, the outlook is bolstered by easing pricing pressures in the US generics market and improved operating leverage, which is expected to raise operating margins by 70-80 basis points to around 22.5%.
The Indian pharmaceutical sector is projected to achieve revenue growth of 8-10% in the current financial year, according to a report by CRISIL Ratings. This growth is attributed to strong exports to regulated markets like the US and Europe, a recovery in semi-regulated markets such as Africa and Asia, and sustained domestic demand.
Following a successful year with approximately 10% growth, the outlook is bolstered by easing pricing pressures in the US generics market and improved operating leverage, which is expected to raise operating margins by 70-80 basis points to around 22.5%.
The report highlights that the sector will benefit from stable cash flows and low financial leverage, maintaining strong credit profiles as pharmaceutical companies pursue acquisitions in niche therapeutic areas. An analysis of 190 drugmakers, representing about half of the Rs 4.1 trillion market last year, reveals that revenue is nearly evenly split between domestic sales and exports.
Domestic formulations revenue is driven by both chronic and acute therapeutic segments, while exports primarily consist of formulations (80%) and bulk drugs (20%). Formulation exports are expected to grow by 12-14% in rupee terms, with regulated markets projected to see growth of 13-15% due to ongoing drug shortages and new product launches. Exports to semi-regulated markets are forecasted to increase by 8-10%, supported by improving foreign exchange reserves in African and Latin American countries.
On the domestic front, revenue is projected to grow by 7-9%, largely driven by price increases in non-NLEM (National List of Essential Medicines) products. However, growth in the NLEM segment is expected to remain subdued due to minimal changes in the Wholesale Price Index last year. The chronic segment, driven by lifestyle-related diseases and increased health awareness post-pandemic, is anticipated to be a key contributor to domestic revenue growth.
Aditya Jhaver, Director, CRISIL Ratings, noted that companies are focusing on acquisitions to expand their presence in the active pharmaceutical ingredients (API) and formulations sectors. While these acquisitions may lead to short-term increases in debt, they are expected to enhance the overall business risk profile of the sector.
Looking ahead, CRISIL cautions that large-scale, debt-funded acquisitions, regulatory challenges, potential price caps on raw materials, and litigation costs from US antitrust suits will be critical factors to monitor in the sector.
(Business Standard)
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