ICRA : Indian pharma industry to grow by 8-10% in FY22; growth momentum likely to moderate in FY23

7 Apr 2022 , 01:17 PM

Revenues for ICRA’s sample set of 21 Indian pharmaceutical companies is estimated to grow at 8-10% in FY2022; and moderate to 6-8% in FY2023, partly attributable to the high base of FY2022. Growth in FY2023 is expected to be supported by growth of 7-9% in the domestic market, 12-14% in the emerging markets and 7-9% in the European business, even though growth in the US business is expected to remain muted, owing to subdued pricing environment in the market in the near to mid-term.

The operating profit margin for the sample set stood at 21.7% in Q3 FY2022 and 23.2% in 9M FY2022, in line with the corresponding period of the previous fiscal. However, headwinds related to pricing pressures and rising raw material costs will result in some contraction in margin for the sample set to 22.5% in FY2022 and further to pre-Covid levels of 21-22% in FY2023, though the same will remain healthy. The extent of impact on margins will differ from company to company depending on the product portfolio, revenue share from the US market and new product launches.

Commenting on the growth trends so far, Mr. Deepak Jotwani, Assistant Vice President & Sector Head, ICRA, said, “The revenue growth for the sample set was moderate at 6.2% in Q3 FY2022, largely in line with 6.4% witnessed in Q2 FY2022. Notwithstanding some moderation, growth in domestic and emerging markets remained healthy; however, overall growth in Q3 FY2022 was impacted by pricing pressures in the US market and high base of Q3 FY2021 which was supported by uptick in demand post the adverse impact of the pandemic in Q1 FY2021.

Revenue growth in the domestic market for the sample set moderated to 11% in Q3 FY2022 from 15.3% in Q2 FY2022. However, this was higher compared to the 5.6% Y-o-Y growth for the Indian Pharmaceutical Market (IPM). The relatively higher growth for the sample set, vis-a-vis the industry was supported by a higher share of chronic/sub-chronic segment for these companies, which witnessed a robust performance, continued traction for top brands in focus therapies, and new product launches for these companies.”

As for the US market, the revenue growth for the sample witnessed a marginal Y-o-Y contraction of 1.1% in Q3 FY2022, owing to continued high single digit to low teens price erosion in the US generics market. However, revenues grew marginally by 1.3% on a Q-o-Q basis in Q3 FY2022. Some major pharma companies are focusing on specialty products, injectables, complex generics including first-to-file opportunities to improve growth prospects and margins for the US business.

Growth on a Y-o-Y basis for the emerging markets in Q3 FY2022 was lower as compared to that in H1 FY2022. Seasonal demand and higher level of one-off sales of Covid-19 related drugs led to significantly higher growth in emerging markets in Q2 FY2022, which normalised to some extent in Q3 FY2022.

ICRA expects the research and development (R&D) expenses to stabilise at current levels of 6.5%-7.5% of revenues for its sample set as companies continue to focus on complex generics, first-to-file opportunities and specialty products, which entail higher R&D expenses. Stable investments in R&D to develop such products will support growth and margin improvement over the medium term.

“Russia and Ukraine are amongst the key emerging markets for Indian pharmaceutical exports. While Russia has accounted for 2.5-3% of the total pharmaceutical exports from India in recent years, the share of Ukraine has been much lower at < 1%. The ongoing geo-political issues between these two countries is unlikely to have a material impact on the Indian pharmaceutical industry. However, as the situation is evolving, there could be moderation in exports to Russia and also foreign exchange losses for Indian exporters on their receivables, given the considerable depreciation of the Ruble against the US $.

Moreover, the recent lockdowns imposed in China due to Covid-19 outbreak is not likely to have any immediate material impact on the Indian pharma industry, as supply chain disruptions have been fairly limited thus far. Even as companies are adequately stocked to meet their near-term raw material requirements, any significant disruptions to the manufacturing activity in China could result in supply chain issues and consequent firming up of raw material prices,” adds Ms. Mythri Marchela, Assistant Vice President & Sector Head, ICRA.

The outlook for the Indian pharma industry remains Stable led by expectation of continued healthy revenue growth and margins. ICRA expects the sample set’s capital structure and coverage indicators to remain comfortable despite higher capex and R&D expenses given the robust liquidity profile.