The domestic active pharmaceutical ingredients (API) companies are likely to maintain a stable financial performance in FY26 despite the pricing pressures, said a recent note from India Ratings & Research.
The ratings agency stated that lower raw material prices and cost improvement initiatives led to over a 100 basis points improvement in gross margins during the first quarter of FY26 as compared to full FY25.
Nishith Sanghvi on Indian API players
“Indian API players, with a broad product range and strong chemistry skills, have rebalanced their portfolio towards higher profitability molecules, increasing supply tie-ups in regulated markets. Lower raw material prices and operational efficiencies will support credit metrics,” said Nishith Sanghvi, director (Corporate Ratings) at India Ratings & Research.
The note further said that incremental capacities under the production-linked incentive (PLI) scheme, and other capacity additions in the past, coupled with cheap imports from Chinese players are leading to pricing challenges in the domestic and rest of world (RoW) markets.
Companies have already invested over Rs 4,200 crore in the PLI scheme with 48 projects approved and 34 commissioned since the launch in March 2020.
Ratings agency’s review of API capacities of Indian players
As per the ratings agency, the API capacities are largely fungible in nature and domestic companies might be able to switch their production based on pricing and demand dynamics.
Additionally, the agency said that while export volumes continue to decline, aggregate volume growth is likely to remain healthy since strong domestic demand offsets the lull in export volumes. Also, within the exports segment, companies have witnessed a better pricing environment in regulated markets as Indian API players increasingly pivot towards high-value molecules and strategic supply tie-ups to enhance profitability.
“Indian API companies continued to witness volume growth in the first quarter of FY26. For a majority of Ind-Ra portfolio companies, EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins are expected to remain largely stable supported by product and geographic diversification and easing raw material costs,” it said.