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FY24 India growth projection: Pharma Sector: ICRA expects 9-11% growth in FY24 led by new launches, US rebound


Credit rating agency ICRA expects the revenues of a sample set of 25 Indian pharmaceutical companies which account for 60% of the overall revenues of the Indian pharmaceutical industry to expand by 9-11% in FY24, compared to 10% over previous year.

The operating profit margin (OPM) for the sample set is projected to improve to 22-23% in FY24, against 20.7% in FY2023, supported by new product launches backed by increased focus on complex generics, specialty drugs, easing of pricing pressure, and some benefits of volume expansion and better pricing due to product shortages in the US market.

ICRA expects the overall credit profile of the Indian pharmaceutical companies to remain healthy, supported by their stable earnings profile, comfortable leverage and coverage metrics, and strong liquidity position, in spite of the credit risk arising from any adverse regulatory actions.

The projected revenue growth in FY24 will be primarily supported by 11-13% expansion in the US market and 7-9% growth in the domestic market, while revenues from the European market and emerging markets are expected to rise by 11-13% and 13-15%.

The US has always been a key market for most leading Indian pharmaceutical companies, accounting for a sizable share of their revenues. However, the share of revenues from the US market for ICRA’s sample set of companies declined to 35% in FY22 compared to 40% in FY20 owing to consistent pricing pressure, lack of major blockbuster products going off-patent and increased regulatory scrutiny in the recent years.

With easing of pricing pressure, significant new launches and shortages of some products, the same increased to 37% in FY2023 and 38% in the first half of FY24, ICRA report said.“Apart from some key drugs going off-patent, product shortages in select therapeutic segments such as oncology, anesthesia, cardiovascular among others in the recent quarters have also been a growth driver for generic companies in the US market to some extent,” said Deepak Jotwani, assistant vice president & sector head, ICRA.”These shortages in the US market have been partly caused by lower production and discontinuation of operations by some pharmaceutical companies (including local ones) owing to persistent pricing pressure, supply chain challenges and increased regulatory scrutiny by the United States Food and
Drug Administration (USFDA),” Jotwani said.

Jotwani added that the incidences of warning letters and import alerts issued to manufacturing facilities of the Indian pharmaceutical companies have increased over the past year and remain a key credit risk.

“These have led to delays in product launches for some companies, translating into failure to supply penalties and entailing significant cost burden towards remedial measures including hiring consultants and consuming additional management bandwidth, in turn impacting the profit margins,” he added.

ICRA expects the revenue growth of its sample set of companies in the domestic market to be 7-9% in FY24, supported by price increases and new product launches.

In H1FY24, ICRA’s sample set of companies witnessed a 7.2% YoY growth, negatively impacted by the price reductions required to be undertaken because of price caps by the National List of Essential Medicines (NLEM) on various products besides an uneven monsoon, which affected acute therapy sales.

The revenue growth of the sample set of companies in the European market has picked up considerably in the current fiscal, largely on the back of a low base, uptick in the base business (both branded and generics segment), new product launches (especially injectables) and incremental revenues from new tender wins in countries such as Germany in addition to 8.8% depreciation of the Indian Rupee against the Euro in nine months ending December 31, 2023.

ICRA foresees the research and development expenses for its sample set of companies to stabilise at 6.5-7% of their revenues as the companies will optimise their spending, focusing more on complex molecules and specialty products against plain vanilla generics.

The report said leading Indian pharmaceutical companies have made sizable strategic acquisitions in the recent past to enhance market share in select geographies and therapeutic segments.

“Most of these acquisitions have been towards strengthening therapeutic coverage, primarily in the US and Indian markets. This is expected to provide diversification benefits and support revenue growth for these companies,” the report said.

The debt-funded acquisitions by some companies in FY23, the total debt to operating profit before depreciation, interest, tax and ammortisation (OPBDITA) of the sample set of companies increased to 1.25x as on March 31, 2023 compared to 0.9x as on March 31, 2022.

“Nevertheless, this metric is expected to remain comfortable at 1.0-1.1x over the near-to-medium term, despite high capital expenditure supported by healthy internal accrual generation,” the report added.


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