Pharma companies' profits will moderate in near term: CRISIL

Revenue growth and increase in research and development expenses will moderate profit growth of Indian pharmaceutical companies, rating agency CRISIL said in a report on Wednesday.

According to CRISIL exports of generic drugs to the US will slow down 300 basis points to 10-12% in the medium term as only about $100 billion worth drugs will go off patent ( in comparison to $ 180 billion worth drugs which went off patent between 2011-14).

"With some large players having a meaningful presence in the highly competitive US market coming under Food and Drugs Administration scrutiny, export growth to that geography is likely to slow down. However first-to-file product launches could help drive growth for select players not currently under the regulatory gaze. Players will increasingly focus on niche and innovative segments entailing higher R&D expenditure. Slowing revenue and heightened R&D will moderate profitability in the near term," CRISIL said.

US market accounts for 40-50% of sales for few top Indian drug makers.

CRISIL has ratings on 283 pharmaceutical companies, around 55% of which have an international presence. Of this lot, around 10% have faced action from the FDA or other regulators in the developed markets -- till date.

CRISIL believes regulatory scrutiny of domestic companies will remain intense over the medium term and adherence to current Good Manufacturing Practices - or cGMP -- is critical because, outside US, India has the highest number of manufacturing facilities approved by the FDA. These cater to more than a fourth of demand in volume terms from that country. Further, prolonged remediation times with material impact on business risk profiles could exert pressure on credit profiles of some of the players under scrutiny and hence will be key credit monitorables.

Anuj Sethi, Senior Director, CRISIL Ratings: "Companies with multiple plants and sufficient spare capacity have been able to offset revenue loss through site transfers. Also, a geographically diversified presence and strong financial metrics are helping cushion the impact of the fall in operating profitability because of regulatory action on their credit profiles. But manufacturers with high dependence on affected plants have witnessed some pressure on their credit profiles."