Revenues Indian pharmaceutical companies are expected to grow by 6-8% in the financial year 2023-24, primarily driven by steady performance across key markets — the U.S. and India — and some recovery in growth in the European market, according to ICRA.

The operating profit margin (OPM) is expected to be steady at 21-22% in FY24, supported by stabilisation of raw material prices and increased focus on complex generics and specialty molecule launches in the U.S. market, the ratings agency says.

New specialty complex generic molecule launches in the U.S. market by ICRA's sample set of 16 leading pharmaceutical companies will help them offset continued pricing pressure and also support revenue growth of 6-7% in FY24, says Deepak Jotwani, assistant vice president and sector head, ICRA.

The ratings agency expects the revenue growth for its sample set to increase to 6-8% in FY24, post an estimated growth of 3-4% in FY23, given the large base of FY22.

"Structural factors such as an ageing population and continued rise in lifestyle/chronic diseases, in addition to the WPI-linked price hike for products under the NLEM (National List of Essential Medicines), new product introductions, and annual price hikes for non-NLEM products are expected to support revenue growth for the industry. Steps being taken by sample set companies towards new product introductions and enhancement in field force are also expected to support their growth going forward," says Jotwani.

While India and the US remain the key focus markets for Indian pharmaceutical companies, most companies have also enhanced their presence in emerging markets to fuel their growth. Growth in the emerging markets has been driven by new product launches, strong demand, and depreciation of the rupee against certain currencies.

This comes at a time when mergers and acquisitions (M&A) in the pharmaceutical industry have picked up considerably over the past year.

"Leading Indian pharmaceutical companies have made sizeable acquisitions in the recent past to enhance market share in select geographies/therapeutic areas, primarily in the US and the Indian markets, which are expected to provide diversification benefits and support revenue growth for these players going forward. However, the sizeable value of most of these M&A deals also indicates the elevated risk appetite of these pharmaceutical companies," says Jotwani.

Meanwhile, revenues from the European market are expected to contract marginally, given the ongoing macroeconomic challenges and the large base of the previous fiscal, which was supported by Covid-19 vaccine sales.

ICRA expects the R&D expenses for its sample set to stabilise at around 7-7.5% of their revenues as companies will optimise their spend, focusing more on complex molecules and specialty products, against generics.

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