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According to Mythri Macherla, Assistant Vice President & Sector Head at ICRA, “the operating profit margin (OPM) for the sample set companies is expected to improve to 22-23 percent in FY2024 and remain stable in FY2025, against 20.7 percent in FY2023.”
Indian pharmaceutical companies are expected to generate revenue growth of 8-10% in FY2025
According to an ICRA report, revenues for Indian pharmaceutical companies are predicted to expand by 8-10% in FY2025, up from 13-14% in FY2024. ICRA conducted research on 25 Indian pharmaceutical businesses, representing approximately 60% of the industry, and reported their findings. Domestic growth is predicted to be constant at 6-8 percent, while developing markets may enjoy an 8-10 percent increase in FY2025, compared to 16-18 percent in FY2024.
Mythri Macherla, Assistant Vice President & Sector Head, ICRA, stated, “The operating profit margin (OPM) for the sample set companies is predicted to grow to 22-23 percent in FY2024 and remain constant in FY2025, compared to 20.7 percent in FY2023. This will be supported by new product launches, particularly in the US market, as well as an enhanced focus on complex generics/specialty compounds, comparatively lower pricing pressure in the US base business, and some volume growth benefits.”
“ICRA expects the overall credit profile of Indian pharmaceutical companies to remain sound, owing to their consistent earnings profile, comfortable leverage and coverage measures, and strong cash position. Furthermore, ICRA forecasts research and development expenses for its sample set of companies to continue at 6.5-7 percent of their revenues as they optimize their spending, focusing more on complicated compounds and specialty goods rather than plain vanilla generics,” stated Mythri Macherla.
According to the analysis, following the high base of FY2024, revenue growth momentum in the US and Europe markets is likely to decelerate to 8-10% and 7-9%, respectively, from the YoY rise of 18-20% and 16-18% estimated for FY2024. According to ICRA, the sample set firms’ revenue growth in the US market in FY2024 was driven by increased new product launches, product shortages in select therapeutic areas, and strong performance of complex generics (first to file).
However, it stated that when the base effect plays out, growth is likely to slow in FY2025. “While low single digit pricing pressure in the US market is likely to sustain, Indian pharmaceutical companies remain focused on enhancing their revenue contribution from the complex generics in the US market,” the authors of the study said.
In the meantime, in the European market, revenue growth for the sample set increased significantly in the current fiscal year, driven by a low base, an increase in the base business (both branded and generics segments), new product launches (particularly injectables), and incremental revenues from new tender wins (in countries such as Germany).
Even though the US and European markets grew strongly, domestic market growth was hampered in FY2024 by a change in the composition of the National List of Essential Medicines (NLEM), which resulted in a decrease in realizations for certain drugs, as well as an uneven monsoon, which affected acute therapy sales. Furthermore, a one-time reduction in channel inventory by one of the sample companies had an impact on overall growth. However, the 6-8 percent YoY revenue growth is driven by sales force expansion and increased medical representative (MR) productivity, new product launches with expanded reach, and market share gains for some of the sample set companies.
Commenting on the hazards faced by industry players, Mythri Macherla stated, “The number of warning letters and import alerts issued by the US FDA to Indian pharmaceutical manufacturing businesses has increased in the last year. These have caused delays in product releases, resulting in failure to supply penalties and a large financial burden for remedial efforts such as employing consultants and absorbing additional managerial bandwidth, reducing profit margins.
Given the FDA’s increased vigilance, regulatory dangers remain. Furthermore, while the ongoing Red Sea crisis has had little impact on Indian pharmaceutical companies as of yet, any negative impact in the form of supply chain disruptions or an increase in logistical costs would be closely monitored. In the domestic market, because price rise has been a key revenue driver, any changes favoring genericization and the inclusion of new medicines under the NLEM remain significant threats for industry players.”
Furthermore, ICRA claimed that, while Indian pharmaceutical companies have not made any significant acquisitions in recent quarters (compared to FY2023), they continue to look for chances to drive their expansion. These, it added, are intended to provide diversification benefits and/or increase their market share in specific geographies/therapeutic areas.
According to ICRA’s study, the sample set companies’ total debt/OPBITDA ratio is likely to stay stable at ~1-1.1x as of March 31, 2024 and March 31, 2025, notwithstanding significant capex and solid internal accrual production.
