Indian pharma companies poised for robust growth

Most Indian pharma companies reported resilient operating performance in FY21, benefitting from diversification and sales of pandemic-related drugs.

As the Covid-19 pandemic shows signs of receding in India, the country’s pharmaceutical companies are back with a bang as sales grow robustly.

In the financial year ending March 2022, sales are expected to normalise in categories affected by the pandemic in the previous year, Fitch Ratings said in a report. Most Indian pharma companies reported resilient operating performance in FY21, benefitting from gradual stabilisation after 1QFY21, geographical diversification and sales of pandemic-related drugs.

"Most Indian pharma companies reported resilient operating performance in FY21, benefiting from gradual stabilisation after 1QFY21, geographical diversification and sales of pandemic-related drugs," Fitch Ratings said. The rating agency expects sales of drugs used to treat acute medical conditions and elective procedures to continue to recover in FY22.

Soaring sales

Sales in these categories fell in FY21 as travel restrictions reduced doctor visits and hospitals prioritised Covid-19 treatment over elective procedures. However, the risk of further waves of infection remains significant in markets with slow roll-outs of vaccination, including India, but healthcare systems are better prepared after the second wave, which should limit the impact.

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"We believe revenue in key markets, including the US and Europe, will also benefit from a healthy pipeline of generic drugs and further progress in launches of specialty drugs by larger companies. This should help to offset the effects of continued price erosion, particularly in the US," Fitch Ratings said.

Several companies have taken steps to remediate shortcomings pointed out by the US Food and Drug Administration (USFDA) previously in their plants, but travel restrictions delayed re-inspections last year. Progress in resolving the USFDA issues after resumption of inspections could accelerate new launches.

Boost for drugmakers

According to Fitch Ratings, sales for drug makers in the near term will be boosted by demand for Covid-19 related drugs, particularly in India. "Some companies say they will expand production capacities in active pharma ingredients (API) and injectable products to take advantage of government incentives and increased demand," Fitch Ratings said.

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Fitch Ratings expects costs to rise to normal levels in FY22 as companies step up marketing and R&D activities. Nonetheless, higher sales will cushion the impact on margins.

According to the rating agency, costs are expected to rise to normal levels in FY22 as companies step up marketing and R&D activities.

However, higher sales will cushion the impact on margins – for instance, resilient operating performance enabled Glenmark and Jubilant Pharma to proactively refinance their US dollar notes maturing in 2021. Most companies were prudent about growth investments in FY21, which enabled debt repayments.

“We expect capex to rise in FY22, but this should not affect the strong financial flexibility at most companies,” Fitch said.