Pharmaceuticals Exports to Overtake Domestic Sales in FY15 - India Ratings

Chennai, February 7, 2014: India Ratings & Research (Ind-Ra) has revised its outlook for the pharmaceutical sector to positive for FY15 from stable on the back of increased exports to the US and ‘pharmerging’ markets. Profit margins are likely to improve on increased utilisation of manufacturing facilities.   
The agency expects credit profiles of the large pharmaceutical manufacturers to remain strong while smaller, active pharmaceutical ingredients and pharmaceutical intermediates manufacturers, with a turnover of up to INR1bn will continue to face liquidity and competitive pressures.
Ind-Ra believes backed by the increasing traction for generics globally and new generic drug approvals for Indian pharmaceutical companies in different jurisdictions, exports are likely to overtake domestic market sales in FY15. The domestic pharmaceutical market is likely to see high single-digit revenue growth.
The sector has received more than USD12bn worth of foreign direct investment through various deals since 2006. Manufacturing facilities carrying approvals from regulated markets are likely to be the acquisition targets of domestic and foreign drug manufacturers as a green-field investment involves a two to three year gestation period.
The year also saw increased regulatory action with the Indian government bringing 201 additional drugs under price control, the Supreme Court of India ordering the closure of 157 clinical trials and USFDA issuing warning letters to 10 Indian manufacturing facilities. While the actions till now are not significant considering the size of the Indian market, any significant increase in regulatory actions will have negative implication for the industry.
WHAT COULD CHANGE THE OUTLOOK
Regulatory Actions: Widespread regulatory actions can lead to erosion of confidence in the pharmaceutical industry and affect exports.
Marketing Exclusivities: Success in acquiring marketing exclusivities (Para IV or first to file (FTF) opportunities in the US) in the regulated markets and/or successfully commercialising bio-generic molecules can provide upward thrust to the sector’s earnings and could benefit individual companies. Highly leveraged acquisitions at very optimistic valuations could be negative for ratings.
(Source: Manager – Corporate Communications and Investor Relations, India Ratings & Research -A Fitch Group Company.)