Reports

Indian Pharmaceutical Sector Set for 8-10% Revenue Growth This Fiscal

The CRISIL study, which covers 190 drug manufacturers representing roughly half of India’s Rs 4.1 lakh crore pharmaceutical market, indicates that the sector's revenue is nearly evenly split between domestic sales and exports.

• By Newsdesk
• New Delhi
• Sep 20, 2024

Reports

The Indian pharmaceutical industry is projected to witness a revenue growth of 8-10% this fiscal, building on the approximately 10% growth seen last year. This growth will be driven by robust exports to regulated markets, a recovery in semi-regulated market exports, and steady domestic demand, according to a recent CRISIL study.

Operating margins are expected to improve by 70-80 basis points (bps) to around 22.5% this fiscal, supported by an improved operating leverage and easing pricing pressures in the U.S. generics market. This follows a 100 bps margin increase last fiscal. Strong cash generation and low financial leverage are expected to maintain stable credit profiles for pharmaceutical companies, even as they pursue acquisitions in targeted therapeutic areas.

The CRISIL study, which covers 190 drug manufacturers representing roughly half of India’s Rs 4.1 lakh crore pharmaceutical market, indicates that the sector's revenue is nearly evenly split between domestic sales and exports. Domestic formulation revenue is divided equally between chronic and acute therapeutic segments, while exports primarily consist of formulations (80%) and bulk drugs (20%). Of the formulation exports, 58% are directed to regulated markets, and 42% to semi-regulated markets.

"Formulation exports are forecasted to grow by 12-14% in rupee terms this fiscal," said Aniket Dani, Director of CRISIL Market Intelligence & Analytics. He added that the regulated markets of the U.S. and Europe will see growth of 13-15%, driven by ongoing drug shortages, easing pricing pressures in the U.S., and increased volumes from new product launches, particularly in niche and specialty products. Exports to semi-regulated markets are expected to grow by 8-10%, aided by improving foreign exchange reserves, stronger local currencies, and easing economic crises in some African and Latin American countries.

On the domestic front, revenues are anticipated to grow by 7-9%, mainly driven by price increases, with volume growth supported by new product launches. Non-NLEM (National List of Essential Medicines) products will likely lead this price-driven growth, as price hikes in the NLEM portfolio will remain limited due to minimal changes in the Wholesale Price Index (WPI) last fiscal. The chronic segment is expected to be the key driver of domestic revenue growth, fueled by rising lifestyle diseases and increased health awareness post-pandemic.

Strong cash flows and a stable working capital cycle of approximately 50 days will ensure the financial health of the sector. CRISIL-rated players are expected to maintain a healthy financial risk profile, with a debt-to-EBITDA ratio of 0.9 and an interest coverage ratio exceeding 12 times in fiscal 2025.

"With robust cash flows and strong balance sheets, pharmaceutical companies are increasingly pursuing inorganic growth through acquisitions in the API (active pharmaceutical ingredients) and formulation sectors," said Aditya Jhaver, Director at CRISIL Ratings. These acquisitions are aimed at diversifying product portfolios or consolidating market share in specific therapeutic areas. While such deals may involve significant debt funding and temporarily impact financial risk profiles, the overall credit profile remains strong due to the immediate contributions from the acquired entities.

However, potential challenges lie ahead, including the integration of debt-funded acquisitions, resolution of regulatory issues, the pace of new product launches, litigation costs from U.S. antitrust cases, fluctuations in raw material prices, and possible domestic price caps. These factors will be closely monitored as the sector continues to grow.