SME Tracker: Bulk-drug firms' prospects boosted by focus on niche molecules

CRISIL RESEARCH expects the prospects of small and medium enterprises (SMEs) making bulk drugs to improve in the near term, because of their sharp focus on developing niche and complex molecules. These are difficult to manufacture but command a higher premium.

Strong demand for formulations and increasing health insurance penetration would also support growth.

Developments in China have been impacting bulk-drugs players in India. Recently,quality issues with Chinese active pharmaceutical ingredients in hypertension drugs had prompted a global recall.

That prompted multinationals to look at alternative sources such as India. Further, the recent clampdown on polluting industries in China had led to a shutdown of several bulk-drug factories.

This has impacted China’s supply of bulk drugs, providing Indian players with a short-term opportunity.

We expect a gradual uptick in the margins for SMEs,aided by easing raw material pressures and increasing demand.

Raw material pressure would recede with a revival in supply from China owing to some Chinese factories moving inland and capacities coming back on-stream. In a bid to reduce dependence on China for bulk drugs, the Indian government is also looking at steps to boost domestic production.

It has recently given in-principle approval for a proposal to set up a bulk- drugs park in Himachal Pradesh. Also, companies have been allotted land at the MIHAN bulk drugs park in Nagpur.