Good growth, but will it continue?
First the good news. The BSE Healthcare Index has outperformed the overall Sensex in the last two years. Indian pharmaceutical companies continue to make inroads in the US market with more patent expiries on the cards. In fact the rupee depreciation is expected to give a positive upside of 10-12 per cent this year to pharma exporters.
Likewise, analysts don’t see any adverse effect of the lower than normal GDP growth at 5.3 per cent on domestic formulations. In fact as other sectors slide, the defensive nature of the pharma sector will stand out more this year. CRAMs players could see some dip in demand as big pharma continues to face challenges but this too will even out.
But now the bad news. Leaving revenues aside, there are signs of softer demand and more careful capital deployment by Indian pharma companies. If sales projections are so strong, why are the same companies being so cautious when it comes to capital expenditure on lab equipment and the like?
Scientific instrumentation and solution providers like Waters Corporation and Thermo Fisher Scientific have reported lower than anticipated demand from their customers in India in their Q1 results, a surprise after relatively sustained sales in previous quarters.
Waters Corporation’s overall sales in the Q1 2012 fell short of their expectations as they encountered weaknesses in some developing markets and delays in capital releases from many of their larger pharma customers. As far as India’s contribution to Q1 2012 goes, the Waters’ top brass analysed this unexpected poor show due to the effects of a weaker rupee and postponing of capital spending at both generic drug makers and CROs. The company, however, indicated in an earnings call that there are signs of improvement in the second quarter so that is a hopeful sign.
Thermo Fisher Scientific had a good Q1 2012, posting strong revenue growth with a 14 per cent increase in the quarter. However, growth in India was in the low-single digits for the company, a little bit slower than some of the recent quarters. Demand has been reasonable for consumables and bioscience reagents but capital equipment like lab equipment, lower-end instruments, lab workstations has been muted.
So what do these results say of the internal health of Indian pharma? The next few quarters will hopefully see a return to normal spends by Indian pharma. Both Waters and Thermo Fisher Scientific have reported strengthening demand. Lets hope the upward graph continues.
Viveka Roychowdhury
Editor
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