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Higher exports to help pharma eke out 8-9% growth this fiscal
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SME Times News Bureau | 25 Sep, 2020
Living up to its moniker of a defensive bet, the Rs 2.8 lakh crore
Indian pharmaceutical sector is set to emerge more or less unscathed
from the Covid-19 pandemic this fiscal, CRISIL said on Thursday.
The sector is well-diversified with exports and domestic formulations accounting for almost equal share.
According
to the rating agency, this fiscal, growth in exports at 11-12 per cent
(as against 10 per cent last fiscal) will outpace growth in domestic
formulations expected at 5-6 per cent (from 10 per cent in fiscal 2020),
leading to 8-9 per cent overall growth, down just 150 basis points
on-year.
Operating profitability for 350 CRISIL-rated
pharmaceutical companies, representing 70 per cent of sector revenue,
would soften by 100-150 bps but remain healthy at 19 per cent despite
higher input prices. Credit profiles will continue to be supported by
healthy balance sheets.
The export pie is divided into regulated
markets such as the US and Europe (45 per cent), rest of world (ROW)
markets (35 per cent) and bulk drugs (20 per cent). Exports growth is
expected to remain strong at 10 per cent and above in each of the
segments.
The growth in the regulated markets will be supported
by steady increase in new product launches from compliant plants, lower
pricing pressure on existing generics, and a visible easing in scrutiny
by the United States Food and Drug Administration (US FDA) in recent
months.
According to Isha Chaudhary, Director, CRISIL Research,
"India accounted for almost half the abbreviated new drug application,
or ANDA, approvals provided by the US FDA since fiscal 2019. This strong
pipeline, coupled with lower import alerts and warning letters in
recent months, should ensure a steady pace of new launches, which will
help sustain export momentum to regulated markets."
Exports to
ROW markets, too, are expected to rebound to 10 per cent compared to 7
per cent in fiscal 2020, driven by opportunities in under-penetrated
generic markets such as Africa and Latin America. Also, bulk drug
exports will benefit from moves worldwide to reduce dependence on China.
Tanvi
Shah, Associate Director, CRISIL Ratings, said : "Higher exports should
offset some of the reduction in domestic formulation sales because of
pandemic-led disruptions, especially in the acute therapies segment (60
per cent of domestic formulation sales). Lower footfalls in hospitals
and fewer field visits by medical representatives have affected
prescription-based sales in acute therapies, as evident from the steep
moderation in the first-quarter sales of anti-infectives and
gastro-intestinals."
Despite the slight moderation in business
performance, credit profiles of domestic companies is expected to remain
largely steady, benefiting from healthy balance sheets and liquidity.
Equity infusions from private equity funds have also helped improve
credit metrics in recent times.
CRISIL said that it expects
prudence in capital and research and development spending, as well as
efficient working capital management, will enable companies manage
transition through the
current challenging times. For instance,
the median gearing for CRISIL's sample set is expected at less than 0.4
times in fiscal 2021 (0.42 times in fiscal 2020).
That said, a
few large pharmaceutical companies are facing anti-trust suits in the
US. Any unanticipated litigation costs or adverse developments such as
increased US FDA scrutiny impacting new product launches will be
monitorables.
Over the medium term, the government's
production-linked incentive scheme for local bulk-drug manufacturing
could support domestic growth, the agency said. Development of, and
contract manufacturing opportunities in, Covid-19 vaccines could also
support revenues, it added.
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