Domestic demand to drive pharma SMEs' growth in FY22: Crisil SME Tracker

Small and medium enterprises (SMEs), which account for 30-40 per cent of the Indian pharmaceutical industry’s revenue, are expected to log 8-10 per cent growth in the current fiscal year (FY22), after having grown an estimated 8-9 per cent in FY21, riding on a sharp bounce-back in domestic demand.

Last fiscal, pandemic-led disruptions affected domestic demand even as exports surged. March-May 2021 was a particularly good period for Indian formulators due to exceptional demand for drugs amid the second wave of Covid-19 infections. It was, in fact, one of the best years for Indian pharma exporters.

Not surprisingly, key SME clusters such as Ahmedabad, Mumbai, Chennai and Hyderabad are estimated to have witnessed good growth in FY21, due to the high contribution of exports, while the Indore cluster is estimated to have grown at a relatively lower rate due to its high dependence on domestic revenue.

This fiscal, exports are expected to moderate on a high base, posing a drag on overall growth due to their high share (about 55 per cent) in industry revenue. However, domestic demand has bounced back strongly and is expected to keep the momentum going.

The Production Linked Incentive (PLI 2.0) scheme for pharma, which had a separate allocation for MSMEs to encourage their participation, has received a good response and 16 pharma MSMEs have been given approval. Typically, SMEs manufacture and market formulations based on less complex molecules, but the PLI could help some of these move towards niche products with better realisations.

The severity and duration of the third wave remains a key monitorable for the industry. SMEs may not be directly involved in manufacture of Covid-related drugs, but their presence across the value chain, and as contract manufacturers for large players, is expected to benefit them to some extent.