US Market's Strong Performance To Support Indian Pharmaceutical Sector In FY24: Icra
The rating agency Icra has said that strong performance in the United States (US) market to support the growth of the Indian pharmaceutical industry in financial year (FY) 2024 and stated that regulatory risk persists amid the ongoing concerns of the economic slowdown across the globe.
The rating agency expects the revenues of a sample set of 25 Indian pharmaceutical companies (which account for 60 per cent of the overall revenues of the Indian pharmaceutical industry) to expand by 9 to 11 per cent in FY2024, post a YoY growth of ten per cent in FY2023.
The operating profit margin (OPM) for the sample set is projected to improve to 22 to 23 per cent in FY2024, against 20.7 per cent in FY2023, supported by new product launches backed by an increased focus on complex generics and speciality molecules, easing of pricing pressure and some benefits of volume expansion and better pricing due to product shortages in the US market.
Icra expects the overall credit profile of the Indian pharmaceutical companies to remain healthy, supported by their stable earnings profile, comfortable leverage and coverage metrics, and strong liquidity position, despite the credit risk arising from any adverse regulatory actions.
The report also analysed that the primary growth drivers were a forecasted 11 to 13 per cent expansion in the US market, complemented by seven to nine per cent growth in the domestic market. Despite challenges like product shortages and heightened regulatory scrutiny in the US market, these factors acted as catalysts for certain generic companies.
Deepak Jotwani, Assistant Vice-president and Sector Head, Icra said, “Apart from some key drugs going off-patent, product shortages in select therapeutic segments (oncology, pain/anesthesia, cardiovascular among others) in the recent quarters have also been a growth driver for generic companies in the US market to some extent. "
Jotwani added that these shortages in the US market have been partly caused by lower production/ discontinuation of operations by some pharmaceutical companies (including local ones) owing to persistent pricing pressure, supply chain challenges and increased regulatory scrutiny by the United States Food and Drug Administration (USFDA). The incidences of warning letters and import alerts issued to manufacturing facilities of Indian pharmaceutical companies have increased over the past year and remain a key credit risk.
"These have led to delays in product launches for some companies, translating into failure to supply penalties and entailing significant cost burden towards remedial measures including hiring consultants and consuming additional management bandwidth, in turn impacting the profit margins," Jotwani mentioned.
The report also examined how the industry's R&D spending levelled off at 6.5 to 7 per cent of sales, with businesses concentrating on maximizing their expenditures on speciality goods and complex molecules. The company's large acquisitions are expected to result in higher debt levels in FY2023; however, because of strong internal accrual generation and high capital expenditure, the total debt/OPBDITA ratio is predicted to stay manageable at 1.0 to 1.1 times.
In addition, the industry continues to face regulatory obstacles and uses strategic changes to maintain growth in the face of changing market conditions, Icra said.
