India Ratings and Research maintains Neutral Outlook for pharmaceuticals sector in FY26
Revenue growth projected at 9 % -10 % year-on-year; operating margins expected to remain stable
India Ratings and Research (Ind-Ra) has maintained a Neutral Outlook for the pharmaceuticals sector in FY26. The agency projects overall revenue growth of 9 per cent-10 per cent year-on-year, driven by growth in the domestic chronic segment, US generics, and the contract development and manufacturing organisation (CDMO) business. EBITDA margins are expected to remain at historically elevated levels over FY25-FY26, supported by growth in high-value products, moderation in pricing pressures, cost optimisation efforts, and softening of active pharmaceutical ingredient (API) prices.
“Ind-Ra’s coverage universe in the pharma sector saw healthy sales growth with strong operating margins in FY24 and 1HFY25. The agency expects the overall revenue to grow 9 per cent-10 per cent yoy and the EBITDA margins of the companies to remain close to the historically elevated levels over FY25-FY26. Synergy benefits and a successful integration of the acquired assets are the main factors to look out for in FY26,” says Vivek Jain, Director, Corporate Ratings at India Ratings and Research.
The Indian pharmaceuticals market (IPM) is projected to grow by 8 per cent year-on-year in FY26, supported by a 4 per cent-5 per cent increase in drug prices, volume growth, and new product launches. The agency forecasts 8 per cent-9 per cent year-on-year growth for US-focused companies over FY25-FY26, driven by revenue contributions from key products, stable pricing pressure, favourable currency movements, a moderation in raw material prices, and revenue from patent expiries valued at over $10 billion in FY26. Growth in the API business is expected to remain muted, consistent with FY25 performance, due to lower raw material prices.
Ind-Ra has maintained a Stable rating Outlook on 67 per cent of its rated pharmaceutical companies in FY25, citing a low leverage ratio and adequate liquidity, and expects limited rating movements in the sector. Since April 2024, the agency has upgraded the ratings of 24 pharmaceutical companies due to improvements in business and financial profiles, strong operating cash flow conversion, lower net leverage, and an upward trend in return on capital employed. Rating actions in FY26 will be influenced by factors such as US Food and Drug Administration (USFDA) actions, synergy benefits from mergers and acquisitions, integration of acquired assets, operating profitability, and business visibility. Any material deviation from expected credit metrics could result in rating downgrades.
Most large pharmaceutical companies rated by Ind-Ra fall into high investment-grade categories. These companies are adequately capitalised to undertake significant investments in FY26 to align with evolving market opportunities.
Ind-Ra does not foresee major liquidity risks in the sector despite similar debt maturity levels over FY26-FY27. Large pharmaceutical companies typically maintain cash balances accounting for 10 per cent-11 per cent of their revenues. Additionally, most companies have sufficient headroom under debt covenants and access to diversified funding sources.