Pharma sector revenue, margins likely to remain healthy in FY22: ICRA
Dec 24, 2020
New Delhi [India], December 24 : With inelastic demand for drugs and resumption of production to the near pre-Covid levels by Q3 FY21, revenue growth for Indian pharmaceutical market is expected to be 7 to 9 per cent in FY21 despite muted growth in Q1 FY21, according to investment information agency ICRA.
The revenue growth in FY22 is expected to be slightly better at 8 to 11 per cent, though lower incidences of acute diseases, lesser OPDs and elective surgeries may continue to have some bearing on growth and will depend upon the course of the pandemic.
The active pharmaceutical ingredient (API) and key starting material (KSM) supplies from China which were initially hit due to Covid-19 have resumed gradually since March and are nearing the normalcy levels, said ICRA.
About 60 per cent of the APIs/KSM consumed is imported from China. Production disruptions owing to restrictions in mobility of manpower and materials eased significantly after the first few weeks of lockdown.
At present, the production has reached 90 to 95 per cent of the pre-Covid levels. The profitability improved in H1 FY21 owing to lesser overheads during the lockdown period -- primarily travel, marketing and selling expenditure.
ICRA said the trend is expected to reverse once the pandemic situation resolves and FY22 margins will remain in line with the pre-Covid levels.
Credit metrics of leading pharma companies are expected to remain stable in view of future growth prospects in regulated markets and relatively strong balance sheets.
The capital structure and coverage indicators are expected to remain strong despite pressure on profitability and a marginal rise in debt levels given the inorganic investments, said ICRA.
The key sensitivity to ICRA's view remains productivity of R&D expenditure, increasing competition in the US generics space and operational risks related to increased level of due diligence by regulatory agencies.
