Reports

Indian Pharma Sector Faces Negative Volume Growth in Q3 FY25 but Retains Strong Margins: Report

Despite the dip in volumes, the sector’s overall performance remains buoyed by robust pricing growth, which increased by 5.3% year-on-year, and new product launches stemming from recent patent expiries, contributing an additional 2.6% year-on-year growth.

• By Newsdesk
• New Delhi
• Jan 13, 2025

Reports

The Indian pharmaceutical market (IPM) has experienced negative volume growth in the third quarter of FY25, marking a reversal after two consecutive quarters of modest positive growth, according to a report by Goldman Sachs.

Despite the dip in volumes, the sector’s overall performance remains buoyed by robust pricing growth, which increased by 5.3% year-on-year, and new product launches stemming from recent patent expiries, contributing an additional 2.6% year-on-year growth.

Industry leaders have indicated that the actual volume growth may be slightly better than what secondary market data suggests, though it still falls short of historical benchmarks. Goldman Sachs predicts that IPM volume growth will stabilize at low single digits in the upcoming quarters. However, the firm foresees pricing advantages beginning to taper off next year, as the Wholesale Price Index (WPI) for 2024 is expected to drop below 2%.

In the U.S. generics market, price erosion has shown signs of easing since March 2023. Yet, Goldman Sachs cautions that this moderation is not a permanent shift. "We expect the price erosion to normalize and stabilize at mid-to-high single digits over the medium term," the report states.

On the margins front, Indian pharmaceutical companies are expected to sustain strong gross margins, supported by favorable U.S. pricing conditions, reduced input costs, and currency depreciation. "The sustained favorable pricing environment in the U.S., combined with softer input costs and currency depreciation, will continue to bolster gross margins for Indian pharma companies," Goldman Sachs notes.

Nevertheless, the report highlights potential risks, such as rising input costs due to freight and transportation challenges in the Middle East. Additionally, increasing R&D expenses and higher prices for active pharmaceutical ingredients (APIs) could partially offset gains. Despite these headwinds, margins for FY25 are projected to remain robust, underscoring the resilience of the sector.