Indian Pharmaceutical Industry - Indian pharma companies to demonstrate healthy growth and margins in FY2022, despite Covid 2.0
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Indian Pharmaceutical
Industry
Indian pharma companies to
demonstrate healthy growth and
margins in FY2022, despite Covid 2.0
JUNE 2021
0
Highlights – Q4 FY2021 and FY2021
▪ The impact of Covid-19 on Indian Pharma Market (IPM) has been relatively limited in FY2021
owing to inelastic demand for pharmaceutical products and resumption of imports of key input
materials from China from March 2020 onwards. However, some impact on volume growth was
felt owing to lockdowns (lesser OPDs/elective surgeries)
▪ Revenue growth for ICRA sample of 21 companies and IPM remained muted in FY2021 at 5.8%
and ~3%, respectively, though the same witnessed a growth on a YoY basis despite Covid-19
Click to Provide Feedback related disruptions. Growth was supported by depreciation of the INR vis-a-vis USD/GBP/EUR.
▪ Recent introduction of Production-linked Incentive (PLI) schemes and Promotion of bulk drugs
park augur well for the IPM in the form of reducing dependence on imports of critical APIs as well
Margins improvement during FY2021 as promoting production of value-added products such as biosimilars, complex generics, etc.,
thereby supporting exports.
(22.9% vs 20.1% in FY2020) for ICRA
▪ Domestic Market: In Q4 FY2021 and FY2021, ICRA’s sample set reported a YoY growth of 9.8%
sample set owing to lower overheads, and 7.8%, respectively, in revenues, against a ~5% and 3% YoY growth for the IPM. The higher
unlikely to sustain beyond near term, growth for ICRA sample set was due to relatively higher share of Covid-19 drugs and higher mix of
though margins expected to remain chronic portfolio.
healthy. ▪ US Market: Growth in Q4 FY2021 and FY2021 stood at -5.2% and 1.2% for ICRA’s sample. The
growth in FY2021 was supported by 4.7% YoY depreciation of INR against USD, which partly
compensated the impact of regulatory overhang in the form of warning letters, lack of limited
PLI schemes to augur well for Indian competition product launches and mid-single digit pricing pressure in the base generics business.
pharma companies in the form of
▪ The R&D expenses for leading seven companies have moderated from a high of 9.0% in FY2017 to
reducing import dependence for key 7.3% in FY2020 and 6.4% in FY2021. Indian companies have been optimising R&D expenses as
input materials and promotion pricing pressure for US business has adversely impacted growth opportunities as well as margins.
production of high value products ▪ The operating margins for our sample set stood at 22.9% FY2021 compared to 20.1% FY2020 led
by lower administrative overheads due to Covid-19 related lockdown. The margins also remain
supported by various cost optimisation measures such as lower R&D expenses though adversely
impacted by environment of price cuts across US and Europe..
11
www.icra.in
Outlook
▪ Revenue growth for ICRA sample set is forecasted to be 7-9% in FY2022 and 8-11% in FY2023
Credit Outlook for Indian Pharma supported by gradual recovery post the initial impact of Covid-19. In FY2022, domestic pharma
players remains Stable led by minimal market, USA and Europe are expected to grow at 6-8%, 5-7% and 8-10% respectively.
impact of Covid-19 on revenues and
▪ The growth will be supported by inelastic demand for pharma products, low base of FY2021
profitability.
though some volume growth impact will be seen due to Covid-19 related lockdowns. The growth
for US and Europe remains sensitive to depreciation of the INR vis-a-vis USD/GBP/EUR
▪ ICRA sample set incurred capex of ~Rs. 10,000 crore in FY2021 . ICRA expects the capex for the
industry to increase considerably over the next two years to ~Rs. 14,000-16,000 crore led by PLI
scheme as well as lower capex in FY2021 due to Covid impact .
▪ ICRA expects the R&D expenses to stabilise at current levels and remain in the range of 6.5%-7.5%
for our sample set as companies continue to focus on complex generics, first to file opportunities,
specialty products which entails higher R&D expenses.
▪ Stable investments in R&D to develop complex/niche products will support growth and margins
over the next 3-4 years. ICRA expects the margins to revert to pre-Covid levels in FY2022 at 20.5%
though remain healthy.
▪ The credit outlook for the pharma sector remains stable led by healthy accruals, low leverage
levels and healthy liquidity profile. ICRA expects the capital structure to remain comfortable
despite higher capex and R&D expenses; strong liquidity to support big acquisitions.
▪ The interest coverage ratio stood at 16.4 in FY2021 and is expected to improve to 17.7 and 19.7 in
FY2022 and FY2023 respectively for our ICRA sample set.
22
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Agenda
1 Covid-19 Impact on FY2021
Financial Performance 2 Geography-Wise Growth Trends,
Challenges 3 PLI Schemes - Impact
4 Credit Outlook
5 Rating Actions
6 Peer Comparison
33
www.icra.inContact Details
Shamsher Dewan Gaurav Jain Kinjal Shah
Vice President Vice President Vice President
shamsherd@icraindia.com gaurav.jain@icraindia.com kinjal.shah@icraindia.com
+91 95605 55399 +91 90113 83014 +91 93729 22486
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