India focus for pharma companies has increased with US challenges sustaining. Scale is important in India and we expect large players to gain though growth will be low double digit. R&D & in-licensing will gain prominence. We expect consolidation to increase. NTCPH, LPC are better placed while CIPLA and DRRD need to increase focus. Overall, we remain cautious on large cap, given premium valuations, sustained challenges and earnings risk. Prefer NTCPH, SYNG.
The rising challenges and falling profitability in US markets have led to increased focus in India from various pharma companies. We analyse the growth and market trends for the market and various companies in this report. We expect overall growth to be below GDP growth and historical levels. We expect established players to have better chance at success and expect more consolidation going forward. R&D and first to launch products will become important for success in India.
Indian pharma growth has recovered to c10% in FY19YTD. But monthly incremental sales have been capped around Rs 8-10bn for past 5 years. This, along with the higher base going forward, indicates growth could moderate. Pharma market growth has been lower than GDP and consumption growth for the past six years despite India having low healthcare spend. We expect this trend to continue and overall growth to be capped at 10-11% for the sector below the expectation of low teens.
Unlike the US, where increased competition from new entrants has put pressure on pricing and growth for large companies, in India established players are not facing the challenge. The market share for the top 30 players has increased over past 5 years. We expect this trend to continue and large players can grow faster than industry at low double digits to low teens. We expect consolidation in the domestic market to increase especially as the larger players look for more growth opportunities here. Valuation expectation remains the key challenge, but we expect this to narrow going forward. New brands have found it difficult to gain market share, even for large players. The exceptions have been first to market and low competition products.