Credit profile of Indian pharma cos to remain healthy in FY2025 despite moderation in revenue growth: ICRA

ICRA expects the revenues of its sample set of 25 Indian pharma companies (which account for ~60 per cent of the overall Indian pharma industry) to grow by 8-10 per cent in FY2025, post a YoY increase of 13-14 per cent in FY2024. Following the high base of FY2024, the revenue growth momentum from the US and Europe markets is expected to moderate to 8-10 per cent and 7-9 per cent, respectively, from the YoY expansion of 18-20 per cent and 16-18 per cent, respectively, estimated for FY2024. The domestic market is expected to see stable growth at 6-8 per cent, while the emerging markets may log in an 8-10 per cent rise in FY2025, against 16-18 per cent in FY2024.

The revenue growth of the sample set companies in the US market in FY2024 has been supported by increased new product launches, product shortages in select therapeutic segments, and healthy performance of complex generics (first to file). However, as the base effect plays out, growth is expected to taper in FY2025. While low single digit pricing pressure in the US market is likely to sustain, Indian pharma companies remain focused on enhancing their revenue contribution from the complex generics in the US market.

In the European market, revenue growth for the sample set picked up considerably in the current fiscal, largely on the back of a low base, uptick in the base business (both branded and generics segment), new product launches (especially injectables) and incremental revenues from new tender wins (in countries such as Germany).

In contrast to the healthy growth from the US and European markets, growth in the domestic market in FY2024 was impacted to an extent by the change in composition of the National List of Essential Medicines (NLEM), which led to a decline in realisations for certain drugs, in addition to an uneven monsoon, which affected acute therapy sales. Furthermore, a one-time reduction in channel inventories by one of the sample set companies also impacted the overall growth. That said, the 6-8 per cent YoY expansion in revenues is supported by sales force expansion and increased medical representatives’ (MR) productivity, new product launches with enhanced reach and market share gains for some of the sample set companies. Going forward, sustained price growth and revival in volumes, supported by new product introductions, are expected to continue to support revenue growth from the domestic market. That said, developments on the trade generic policies would be a key monitorable.

While there have not been any sizeable acquisitions by the Indian pharma companies in recent quarters (compared to FY2023), they continue to scout for opportunities to fuel their growth. These are aimed at providing diversification benefits and/or enhancing their market share in select geographies/ therapeutic areas. Without factoring in any large acquisitions, Total Debt/OPBITDA of the sample set companies is expected to remain comfortable at ~1-1.1x as on March 31, 2024 and March 31, 2025, despite high capex (towards capacity expansion, maintenance and upgradation), supported by healthy internal accrual generation. Their liquidity profile remains strong with sizable free cash and bank balances/ liquid investments.