Sluggish exports to regulated markets to cap pharma revenue growth this fiscal: CRISIL

Operating profitability will shrink another 200-250 basis points (bps) after the 130 bps decline last fiscal due to continued pricing pressure in the US generics market, and high input and freight costs which offset moderate revenue growth. Even so, credit quality of pharma players will be stable owing to low-leveraged balance sheets and moderate capex plans, a CRISIL study of 184 drug makers that account for approximately 55 per cent of the Rs 3.4 lakh crore-a-year sector revenue indicates as much.

The sector is well-diversified, with domestic and export sales commanding an almost equal revenue share.

The domestic formulations market is expected to grow seven-to-nine per cent this fiscal, on an approximately 15 per cent growth last fiscal, led by a six-to-eight per cent average price increase as allowed by the National Pharmaceutical Pricing Authority (NPPA) in March 2022 for the drugs covered under the Drug Price Control Order (DPCO), and on the back of new product launches. While the demand for COVID-19-induced drugs and vitamins is fading, a pickup in lifestyle-related chronic portfolio drugs and a few acute portfolio drugs, such as in the dermatology and ophthalmology segments, is likely to drive demand this fiscal.

Speaking in this regard, Aniket Dani, Director, CRISIL Research, said in the report, “Formulation exports could grow six-to-eight per cent this fiscal, driven by 11-13 per cent growth – ­­­in rupee terms – in the semi-regulated markets. The growth in the US generics market will moderate given continued pricing pressure. The rupee’s depreciation saves some blushes, though. Exports to other regulated markets could grow faster as global companies diversify geographically.”

Adding to it, Tanvi Shah, Associate Director, CRISIL Ratings, also said, “Despite the moderation in operating performance and higher working capital needs, credit profiles of rated players will remain stable this fiscal, benefitting from strong balance sheets and healthy liquidity. We expect debt protection metrics should stay healthy, with debt/EBITDA rising to 1.1 times from 0.8 time last fiscal. Also, despite the rising interest rate environment, the sector’s interest coverage ratio will continue to remain healthy at over 12 times this fiscal.”