In FY2022, ICRA sample set is estimated to witness Y-o-Y growth of 6-8 per cent in domestic market formulations, 5-7 per cent in US business and 8-10 per cent in European business.

Margin improvement witnessed in FY2021 owing to cost optimisation measures and lower overheads and R&D expenses during the lockdown period; likely to revert to pre-COVID levels in FY2022-2023.

The impact of COVID-19 on the Indian pharma companies was relatively limited in FY2021 owing to the 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 the lockdowns (lesser OPDs/elective surgeries). The revenue growth for ICRA sample of 21 companies remained muted at ~5.8 per cent in FY2021, though the same witnessed growth on a Y-o-Y basis, despite COVID-19 related disruptions. The growth was also supported by the depreciation of the INR vis-a-vis other foreign currencies, especially the US dollar.

The revenues of sample set from the domestic formulation market witnessed a revenue growth of ~7.8 per cent against a ~3 per cent Y-o-Y growth for the Indian pharma market (IPM). The higher growth for ICRA sample set was due to the relatively higher share of COVID-19 drugs in their portfolio and a higher mix of chronic therapies. The revenue growth for the sample set for the US market in FY2021 was ~1.2 per cent, partly supported by ~4.7 per cent Y-o-Y depreciation of the INR against the USD, which in turn partly compensated the impact of the regulatory overhang in the form of warning letters, lack of limited competition product launches and mid-single-digit pricing pressure in the base generics business.

The operating profit margins (OPM) for our sample set stood at 22.9 per cent in FY2021, against 20.1 per cent in FY2020 led by lower administrative overheads due to COVID-19 related lockdown. The OPM was also supported by various cost optimisation measures such as lower research & development (R&D) expenses, though adversely impacted by price cuts across the US and Europe.

Based on the trends, Gaurav Jain, Vice President & Sector Head, ICRA, said, “Revenue growth for ICRA sample set is estimated at 7-9 per cent in FY2022 and 8-11 per cent in FY2023, supported by gradual recovery post the initial impact of COVID-19. In FY2022, the sample set is estimated to witness Y-o-Y growth of 6-8 per cent in domestic market formulations, 5-7 per cent in the US business and 8-10 per cent in the European business. The growth will be supported by the inelastic demand for pharma products and low base of FY2021, though some impact on volume growth will be witnessed due to COVID-19 2.0 related lockdowns. The growth for the US and European markets remain sensitive to depreciation of the INR against the USD/GBP/EUR.”

ICRA expects the R&D expenses to stabilise at current levels and remain in the range of 6.5 per cent-7.5 per cent for its 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 such products will support growth and OPM over the next three to four years. However, the ratings agency expects the COVID-19 related improvement in margins to be unsustainable and thus the OPM of its sample set is likely to revert to pre-COVID levels of 20-21 per cent in FY2022, though will still remain healthy.

The recent introduction of the 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 input materials as well as promoting production and exports of value-added products such as biosimilars, complex generics, etc., thereby supporting future growth.

“The credit outlook for the Indian pharma industry remains stable led by healthy accruals, low leverage levels and healthy liquidity profile of the pharma companies. ICRA expects the credit metrics of its sample set of Indian pharma companies to remain comfortable despite higher capital expenditure and R&D expenses. Furthermore, the liquidity profile of these companies is also expected to remain comfortable,” Jain adds.