Active pharmaceutical ingredients sales momentum begins to normalise

After witnessing a momentum in active pharmaceutical ingredients (API) sales on account of formulation/medicine makers stocking up during the pandemic, drug makers have begun to see some correction on a sequential basis.

With API supply, especially from China, facing some constraints because of lockdowns in several countries, demand from global clients had shot up for Indian players. This had led to a spurt in API sales in the first two quarters of FY21.

However, with global clients now having adequate inventory, the order growth is beginning to normalise or slowdown in certain cases. This is evident from the Q3 results of several pharma firms that show a sequential dip or muted growth in API sales after picking up significantly in the first half of the year.

For example, a leading API player — Dr Reddy’s Laboratories (DRL) — has seen an 18 per cent drop in revenues from pharmaceutical services and active ingredients on a sequential basis in Q3, while on a year-on-year (YoY) basis the rise is 1 per cent. Erez Israeli, chief executive  of DRL, said: “There has been an inventory accumulation by our customers in the first two quarters. Thus, there has been a dip now (in terms of demand). We are looking for more markets.”

Mumbai-headquartered Cipla has managed to post growth sequentially, but the rate of growth has slumped. While on YoY basis, the API revenue grew 22 per cent, on quarter-on quarter (QoQ) it grew 7 per cent in Q3FY21.

Kedar Upadhye, global chief financial officer, Cipla, said the industry was stocking up APIs in the first half of FY21. “Part of this was due to Wuhan crisis and API shortage, while partly formulation players wanted to stock up APIs to avoid production disruption. We also stocked up. So, going forward the uptake of APIs will slow down a bit,” he explained.

Lupin, too, has seen a dip in API sales on a sequential basis, around 8.1 per cent decline in Q3FY21 compared to the previous quarter. On YoY basis, however, it has grown 8.4 per cent. “There was a momentum in pharma industry in the first half of the financial year and global demand for APIs shot up. However, we will see that correction happening across the stocks as API demand is fizzling out. So, the results for API will be subdued in the second half against the first half,” an analyst said.

Sun Pharma, on the other hand, saw its external sales of API fall by 10.5 per cent to Rs 450 crore in the third quarter of FY21 on YoY basis over Q3 last year. For nine months, API sales of Sun Pharma were at Rs 1,515 crore, up 5.7 per cent. However, the company said its API business imparted benefits of vertical integration and continuity of supply chain for its formulations business. “We continue to focus on increasing API supply for captive consumption for key products,” the company said.

Alembic Pharmaceuticals’ API business grew nearly 21 per cent YoY to Rs 210 crore. According to experts, the demand opportunities are set to reduce. 

“Demand opportunities have started to reduce, with supplies resuming from China. It is incrementally adding capacities to de-bottleneck its plants. The temporary spurt in prices seemed to have normalised,” ICICI Securities said in its note on Alembic Pharma.

Biocon’s generics business revenue was down 3 per cent to Rs 561 crore, as its portfolio of statin APIs were impacted because of muted demand.