The Indian pharmaceutical industry is expected to post a revenue growth of 8-10 per cent during the fiscal 2024, in line with the last fiscal. This, CRISIL said in a report, will be supported by steady domestic growth and increased exports to regulated markets, even as semi-regulated markets face headwinds. The report also stated that the operating profitability is seen improving 50-100 basis points (bps) to ~21 per cent this fiscal, supported by moderation in input and logistics costs, and abating pricing pressure in the US generics market. “This follows two consecutive years of margin contraction due to high pricing pressure in the US and a sharp rise in input costs caused by supply chain disruption during the pandemic, and thereafter,” CRISIL said.
Credit profiles for the sector will remain stable owing to low-leverage balance sheets and moderate capex plans. CRISIL studied 186 drug makers accounting for about half of the Rs 3.7 lakh crore annual revenue of the sector last fiscal to reach the findings.
Earlier, ICICI Securities had stated that the pharmaceutical industry reported revenue growth of ~16 per cent on-year and 15 per cent on-quarter to Rs 647.2 billion in Q1FY24, with growth led by the US market and traction in gRevlimid sales. “Windfall from the ongoing drug shortages and traction in gRevlimid sales in the US drove 16 per cent, 45 per cent, 41 per cent on-year increase in revenue/ EBITDA/ PAT in Q1FY24 for the pharma companies under our coverage,” said Abdulkader Puranwala from ICICI Securities. While gross margins rose by 300 bps, EBITDA margins increased by 440 bps on-year to 65.3 per cent and 23.8 per cent respectively on an aggregate basis.
Meanwhile, CRISIL further stated that the sector is well diversified, with almost equal domestic and export revenues. “Within domestic revenues, the chronic and acute therapeutic segments contribute almost equally. As for exports, formulations and bulk drugs contribute ~80 per cent and ~20 per cent respectively to the total sales. Within formulation exports, sales to US (35 per cent of revenue), Europe (17 per cent), Asia (14 per cent) and Africa (18 per cent) are key contributors,” it said.
The domestic sales is expected to witness 8-10 per cent growth in fiscal 2024. CRISIL said that it expects the chronic segment to be the key contributor to revenues, because of the steady increase in lifestyle-related diseases and continued emphasis on health awareness, post the pandemic.
“Similar to last fiscal, domestic growth in fiscal 2024, will be led by 5-6 per cent increase in realisations, supported partly by high price hikes (linked to the Wholesale Price Index of previous year) allowed by the National Pharmaceutical Pricing Authority (NPPA) for drugs under price regulation. In addition, sale of existing pharma drugs and new launches will drive 3-4 per cent volume growth,” said Aniket Dani, Director, CRISIL Research.
According to CRISIL, formulation exports are seen up 7-9 per cent in rupee terms this fiscal, more driven by volumes, from new product launches, and abating price pressure in the US generics markets. On the other hand, increase in claw-back taxes in select European markets could lead to lower growth in exports to Europe this fiscal. Growth in exports to Asia will improve this fiscal, after clocking a modest growth last fiscal while exports to Africa will continue to remain sluggish on account of low forex reserves (impacting the purchasing power) and high currency volatility.
Further, lower input prices and normalisation of supply chains should cull inventories to pre-pandemic levels, resulting in smaller incremental working capital debt this fiscal.
“Better profitability and lower working capital needs will further strengthen the balance sheets and liquidity of CRISIL Ratings-rated manufacturers, leading to healthy debt metrics. We expect the debt/Ebitda ratio to improve to 1.1 times in fiscal 2024 from 1.3 times last fiscal. Also, despite higher interest rates, interest coverage ratio of players is seen robust at over 9 times,” said Aditya Jhaver, Director, CRISIL Ratings.
Manufacturers, CRISIL said, are increasingly focusing on inorganic growth to diversify offerings and consolidate market share. While the strong balance sheet provides support, any sizeable debt-funded acquisition will be a monitorable. “In the road ahead, any unanticipated increase in litigation costs in ongoing US anti-trust suits, US Food and Drug Administration import alerts and delays in closure of pending regulatory issues, besides price caps on products in the domestic market, if any, will bear watching,” CRISIL report said.