Indian domestic branded formulations market is expected to grow at 10-11 per cent year-over-year (YoY) over the medium-term with high profitability, according to a report by BNP Paribas, research and brokerage firm.
The Indian Pharmaceutical Market (IPM) has reported consistent growth momentum and grew at a 10.8 per cent CAGR over FY12-22. BNP Paribas continued to prefer domestic branded formulations businesses in the overall pharma sector given the consistent growth over a long period of time, high return ratios, and annual price hiked of 4-5 per cent, which provide scope for operating leverage and strong free cash flow generation.
“We expect the consistent growth momentum to continue and estimate 10-11 per cent CAGR in IPM value over FY22-27. This is because India is largely a branded generics market, and brands have sticky sales and recall value, are less prone to price risk and are able to absorb annual price increases,” said Sriraam Rathi, Analyst – Healthcare and Pharmaceuticals.
The report also said that India remains an important supplier to the US, but structural triggers are missing in generics and margins are expected to improve aided by softening costs. Since 2020, pharmaceutical products have become the largest imported commodity in the US market and the total import of pharmaceutical products in the US stood at $ 171 billion as of 2021. India has been among the top five suppliers of these imports since 2013 and was the fourth largest supplier in 2021.
Note that India mainly supplies generic products, which have a lower value but are high in volume. Unbranded generics make up only about 10 per cent of the total US pharma market by value but around 85 per cent in terms of volume. Hence, India is an important ally from the perspective of supply of generic products. The supply of pharma products from India to the US has grown at an 8 per cent CAGR in value terms over 2012-21. The growth in value of overall pharma imports in the US has also been similar, at around 8 per cent CAGR over the same period, the report noted.
“We continue to be selective with US generics and do not expect the profitability of this business to materially improve. We prefer companies with clear FDA status, a commercial specialty portfolio and a pipeline of complex generics,” said Rathi.
“Price erosion in generics would keep growth in check, with new launches remaining critical. India is among the top five suppliers of pharma products in the US market, with pharmaceuticals becoming the largest imported commodity in the US,” he said. BNP Paribas recommend Sun Pharma and JB Pharmaceuticals (JBCP) as its top picks in the pharma space.
“We believe Sun Pharma would benefit from operating leverage with continued scale-up in its specialty business. We expect JBCP to see continued strong growth in its India business, leading to margin expansion,” said Rathi.
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