India pharma sector to grow 11-13% in FY27: Crisil
The growth spurt, however is unlikely to flow through fully to earnings, as inflation in raw material, energy and freight costs is expected to compress operating margins by 150-200 bps, the report said.
Accelerating exports and firmer domestic demand could help grow Indian pharmaceutical sector 11-13%, higher than the 8% revenue growth it registered last fiscal, according to rating agency Crisil Ratings in its latest report.
The growth spurt, however is unlikely to flow through fully to earnings, as inflation in raw material, energy and freight costs is expected to compress operating margins by 150-200 basis points (bps), the report said.
Strong cash generation, liquidity, and healthy balance sheets should keep the sector’s credit profiles resilient, it noted, analysing the performance trends of nearly 190 pharmaceutical companies that account for about half of the sector’s revenue.
Dominated by generics, the sector derives almost equal revenue from domestic and export markets, it said. Formulations account for about 83% of exports; of these, around 57% are shipped to regulated markets and the remainder to semi-regulated markets, it notes.
“Export growth is broadening beyond the US. Complex generics and biosimilars are expected to deepen the sector’s presence in Europe, while branded generics and new launches will accelerate growth across Asia, Africa and Latin America. In the US, differentiated product launches and inventory normalisation should partly offset continuing pricing pressure. This broader market and product mix will be the principal driver of export growth, which is projected at 14-16% in rupee terms this fiscal”, Sehul Bhatt, Director, Crisil Intelligence, said.
The domestic market is expected to provide a solid second engine of growth, expanding 9- 11% this fiscal. Chronic therapies will remain the key growth driver, supported by the rising prevalence of lifestyle-related ailments. The market will also benefit from annual price revisions of 5-6% and a recovery in volume growth to 4-5%, compared with around 2% in each of the past two fiscals. The improvement in volumes will be driven by new product launches, stronger prescription demand, improving field-force productivity and deeper penetration into tier-2 and tier-3 markets.
“The sector’s growth momentum is strengthening, but earnings will face a cost test this fiscal, with operating margins expected to moderate by 150-200 basis points to 21.0-21.5%. Higher energy, freight and feedstock costs amid geopolitical volatility in West Asia will outweigh near-term gains from rising operating leverage and a richer product mix. Nevertheless, robust balance sheets and sizeable liquidity buffers give companies the headroom to absorb this margin moderation without weakening credit profiles” Aditya Jhaver, Director, Crisil Ratings, said.