Indian pharmaceutical companies’ revenues are expected to grow by 8-10 per cent in FY2025, posting a YoY increase of 13-14 per cent in FY2024, said a report by ICRA. ICRA studied its sample set of 25 Indian pharmaceutical companies, which account for ~60 per cent of the overall Indian pharmaceutical industry to report the findings. The domestic market is expected to see stable growth at 6-8 per cent, while the emerging markets may log in an 8-10 per cent rise in FY2025, against 16-18 per cent in FY2024.
Mythri Macherla, Assistant Vice President & Sector Head, ICRA, said “The operating profit margin (OPM) for the sample set companies is expected to improve to 22-23 per cent in FY2024 and remain stable in FY2025, against 20.7 per cent in FY2023. This will be supported by new product launches, especially in the US market, backed by the increased focus on complex generics/ specialty molecules, relatively lower pricing pressure in the base business in the US, and some benefits of volume expansion.”
“ICRA anticipates the overall credit profile of the Indian pharmaceutical companies to remain healthy, supported by their stable earnings profile, comfortable leverage and coverage metrics, and strong liquidity position. Moreover, ICRA expects the research and development expenses for its sample set of companies to remain at 6.5-7 per cent of their revenues as they optimise their spending, focusing more on complex molecules and specialty products against plain vanilla generics”, added Mythri Macherla.
Per the report, following the high base of FY2024, the revenue growth momentum from the US and Europe markets is expected to moderate to 8-10 per cent and 7-9 per cent, respectively, from the YoY expansion of 18-20 per cent and 16-18 per cent, respectively, estimated for FY2024. The revenue growth of the sample set companies in the US market in FY2024 has been supported by increased new product launches, product shortages in select therapeutic segments, and healthy performance of complex generics (first to file), ICRA said. However, it maintained, as the base effect plays out, growth is expected to taper in FY2025. “While low single digit pricing pressure in the US market is likely to sustain, Indian pharmaceutical companies remain focused on enhancing their revenue contribution from the complex generics in the US market,” the report stated.
Meanwhile, in the European market, revenue growth for the sample set picked up considerably in the current fiscal, on the back of a low base, uptick in the base business (both branded and generics segment), new product launches (especially injectables) and incremental revenues from new tender wins (in countries such as Germany).
Even as the US and European markets showed healthy growth, domestic market growth was impacted to an extent in FY2024 by the change in composition of the National List of Essential Medicines (NLEM), which led to a decline in realisations for certain drugs, in addition to an uneven monsoon, which affected acute therapy sales. Furthermore, a one-time reduction in channel inventories by one of the sample set companies also impacted the overall growth. That said, the 6-8 per cent YoY expansion in revenues is supported by sales force expansion and increased medical representatives’ (MR) productivity, new product launches with enhanced reach and market share gains for some of the sample set companies.
Commenting on key risks being faced by industry players, Mythri Macherla said, “The number of warning letters and import alerts issued by the USFDA to Indian pharmaceutical manufacturing companies have increased in the past year. These have led to delays in product launches, translating into failure to supply penalties and entailing significant cost burden towards remedial measures like hiring consultants and consuming additional management bandwidth, thus impacting the profit margins. Given the heightened scrutiny by the USFDA, regulatory risks persist. Further, while the ongoing Red Sea crisis has not had an impact on the Indian pharmaceutical companies as of now, any adverse impact in the form of supply chain disruptions or increase in logistics costs will be a key monitorable. In the domestic market, since price growth has been a key revenue driver, any developments favouring genericisation and inclusion of more products under the NLEM remain key risks for the industry players.”
Furthermore, ICRA stated that while there have not been any sizable acquisitions by the Indian pharmaceutical companies in recent quarters (compared to FY2023), they continue to scout for opportunities to fuel their growth. These, it added, are aimed at providing diversification benefits and/or enhancing their market share in select geographies/ therapeutic areas.
Without factoring in any large acquisitions, total debt/OPBITDA of the sample set companies, per ICRA’s analysis, is expected to remain comfortable at ~1-1.1x as on March 31, 2024 and March 31, 2025, despite high capex, supported by healthy internal accrual generation.
