Domestic pharmaceutical industry to grow at 8-11% CAGR in FY 2020-23: ICRA

KEY HIGHLIGHTS

• Despite COVID-19, Indian pharma companies to grow 4-6% in FY21
• 8% growth in FY20 for sample 21 leading domestic companies, led by 12.7% growth in domestic market
• Their growth in the US struggled at 7.4%, mainly due to pricing pressure and regulatory issues
• Global demand to remain stable, US woes to continue

Despite the COVID-19 impact, the domestic pharma industry will grow between 4-6 per cent in FY21 and will have a 8-11 per cent compounded annual growth rate (CAGR) in the FY 2020-2023 period, mainly led by growth in the domestic market, predicts a ICRA research analysis.

The COVID-19 had minimal impact on the Indian pharmaceutical industry, which posted a stable growth of 8 per cent during FY20 thanks to a domestic overall growth of 12.7 per cent due to seasonal factors and stable growth in chronic therapies and a rebound of 14.2 per cent growth in the second quarter of that year. ICRA's study of 21 leading companies said sample companies registered a domestic growth of 9.2 per cent in second quarter and 4.8 per cent growth in the first quarter of last financial year. The second quarter of last year had witnessed outbreak of many diseases in many parts, aiding the growth of the anti-infective segment.

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Growth in their main export market - the Unitesd States - was 7.4 per cent for the year, impacted by regulatory overhang in the form of warning letters, one-offs such as delayed shipments, voluntary recall though few limited competition products and lower pricing pressure and depreciation of rupee against dollar. The margins have remained flattish in FY20 at 20.3 per cent for the ICRA sample of 14 leading companies led by cost cutting measures including R&D optimisation efforts. Though margins remain healthy, pricing pressures for the US base generics business, lack of limited competition products and manufacturing quality issues will continue to trouble them, said the report.

"The global demand scenario is largely expected to remain stable for Indian pharmaceutical industry owing to inelastic nature of prescription drugs, though some impact on volume growth will be felt owing to lockdown and lower economic growth. The impact of lower demand will be felt more in less developed countries", said Gaurav Jain, Vice President & Co-Head, ICRA.

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Moderation in pricing pressure for the US market, new launches and market share gains for existing products and consolidation benefits will drive growth over the medium term. Several companies like Aurobindo, Dr Reddys and Glenmark, have acquired a good portfolio of pipeline products for the US market, which will aid growth going forward, he said.

The report said post onset of COVID-19, manufacturing activity has gradually started in China with shipments and air cargo arriving in India for active pharmaceutical ingredients (APIs), intermediates and key starting materials (KSMs). This has led to production continuation for Indian players though the capacity utilisation across plants is yet to reach pre-COVID-19 levels, mainly due to restrictions and unavailability of non-critical raw material like packaging material during the lockdown period. Indian players hold 2-4 months of inventory, both raw materials and finished goods.

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