Indian pharma sector expected to grow 8-10% this fiscal year

New Delhi: The Indian pharmaceutical sector is on track for an 8-10% revenue growth this fiscal year, following a similar rate of growth last year. This optimistic forecast comes on the back of strong exports to regulated markets, a rebound in exports to semi-regulated markets, and steady domestic demand. 

A recent CRISIL study of 190 drug makers, covering approximately half of the market valued at Rs 4.1 lakh crore last fiscal, supports this positive outlook. The sector’s revenue is nearly evenly divided between domestic sales and exports.

In terms of exports, formulations and bulk drugs account for around 80% and 20%, respectively. Specifically, 58% of formulation exports are directed towards regulated markets, while the remaining 42% go to semi-regulated markets.

The report indicates that operating margins are expected to improve by 70-80 basis points to approximately 22.5% this fiscal year, following a 100 basis point increase last year. This improvement is attributed to enhanced operating leverage and reduced pricing pressures in the U.S. generics market.

Aniket Dani, Director at CRISIL Market Intelligence & Analytics, noted, “Formulation exports are expected to grow 12-14% in rupee terms this fiscal. The regulated markets of the US and Europe will witness a growth of 13-15%, driven by continued drug shortages, easing pricing pressures in the US generics market and the volume uptick expected from new product launches as well as players shifting focus towards niche molecules and specialty products.”

He added, “On the other hand, exports to semi-regulated markets will grow 8-10% this fiscal, led by improving forex reserves, strengthening of local currencies against the dollar, and easing the economic crisis in select African and Latin American countries.”

Domestically, revenue is forecasted to grow by 7-9%, driven primarily by price increases, with volume growth supported by new product introductions. Price increases are expected to come from non-National List of Essential Medicines (NLEM) products, while price growth for NLEM products will be subdued due to minimal changes in the Wholesale Price Index.

The chronic therapeutic segment is anticipated to be the primary revenue driver, influenced by a rise in lifestyle-related diseases and increased health awareness post-pandemic. Strong revenue growth, healthy operating profits, and a stable working capital cycle are projected to maintain robust cash flows. The financial risk profile for CRISIL-rated players remains favorable, with a debt-to-earnings before interest, tax, depreciation, and amortization (EBITDA) ratio of 0.9 times and an interest coverage ratio exceeding 12 times for fiscal 2025.

Aditya Jhaver, Director at CRISIL Ratings, highlighted, “With strong cash flows and healthy balance sheets, players are increasingly focusing on inorganic growth opportunities in the API6 and the formulation space, to either diversify the product portfolios by acquiring the brands/businesses and/or to consolidate market share in the targeted therapeutic areas. While these acquisitions involve sizeable debt funding and a temporary moderation in the financial risk profile, overall credit profile continues to drive comfort from the improvement in the business risk profile, with immediate contribution accruing from acquired entities.”

Looking ahead, key considerations include monitoring the impact of sizable debt-funded acquisitions, any delays in resolving regulatory issues, the pace of new product launches, potential litigation costs from U.S. anti-trust suits, raw material price fluctuations, and potential domestic price caps.