Indian pharma to grow at 7-9% in FY24 despite regulatory risks: ICRA

Credit rating agency ICRA has projected steady growth for the Indian pharmaceutical industry, despite headwinds and regulatory challenges. According to the report released on Tuesday, the revenues of ICRA’s sample set of 25 Indian companies (which account for 60 per cent of the overall domestic pharma industry) are expected to grow by 7-9 per cent in FY24, following a YoY growth of 10 per cent in FY23.

This will be mainly supported by an 8-10 per cent expansion in the domestic market and 6-8 per cent growth in the US market. ICRA’s sample set includes companies such as Dr Reddy’s Laboratories, Sun Pharmaceutical Industries, Cipla and Abbott.

The overall credit profile of Indian pharmaceutical companies is expected to remain healthy, supported by stable earnings, comfortable leverage and coverage metrics, and a strong liquidity position, according to the report.

ICRA’s Assistant Vice President and Sector Head Mythri Macherla said: “The growth in the US market is expected to moderate to 6-8 per cent in FY24, given the large base and continued mid-high single-digit price erosion for base products. The 8-10 per cent growth in the domestic market in FY24 will be supported by a WPI (wholesale price index)-linked price hike of 12.1 per cent allowed for products under the National List of Essential Medicines (NLEM) new product introductions and annual price hikes for non-NLEM products.”

With several Indian companies receiving official action indicated (OAI) observations, warning letters, and import alerts amid increased inspections by the US Food and Drug Administration, Macherla revealed that while some facilities of key pharma companies had received warning letters and/or were placed under import alerts, there had been no material impact on their revenues from the US market until now. “However, delayed resolution of the same could impact new launches and revenue growth momentum in the US market over the medium term.”

Furthermore, ICRA expects the R&D expenses for the sample set to stabilise at around 6.5-7 per cent of revenues, with a greater emphasis on complex molecules and specialty products. The annual capex run rate is predicted to be Rs 20,000 crore in FY24, a decline from Rs 51,600 crore in FY23.

The report also sheds light on the industry’s focus on specialty drugs and complex generics, with acquisitions being made to strengthen portfolios in markets like biosimilars, inhalation, ophthalmology, dermatology, central nervous system, oncology, anti-diabetes, osteoarthritis and pulmonary.

ICRA also noted that the European market may face subdued revenue growth in FY24 due to challenging macroeconomic conditions and intense competition in the tender business. However, emerging markets are expected to support revenues with product launches, strong demand and depreciation of the Indian rupee against certain currencies.