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Indian pharma companies are expected to continue their growth momentum and profitability in US, helped by new product launches, ongoing drug shortages and growth opportunities in the domestic formulation business, according to rating agency India Ratings and Research (Ind-Ra).
The pharmaceutical companies rated by Ind-Ra reported a robust revenue growth in Q1FY24 on account of new launches and a strong demand from the US due to ongoing drug shortages as well as European business. Overall, the topline grew 16.5% YoY in the first quarter of FY24, compared to 14.4% growth in Q4FY23.
Domestic formulations, active pharmaceuticals ingredients (API), Europe and rest of the world (RoW) business grew at 6.2%, 8.7%, 19.9% and 8.5%, respectively, on a yearly basis in 1QFY24. The EBITDA margin of the rated companies rose by 518bp YoY to 23.4% in 1QFY24 compared to 20.6% YOY Q4FY23, led by a decline in raw material cost and lower freight costs. In addition, contributions from high-margin niche launches and easing of pricing pressure in the US market helped the companies’ growth.
Moreover, the rating agency stated that normalisation of drug prices in the US and lower raw material prices are expected to support the company in registering a revenue growth of 10% and EBITDA margin of about 21% during FY24. Ind-Ra said that the results in Q1FY24 provided an early indication of the easing and the trend is likely to sustain for the remainder of the financial year. However, the sustainability of growth beyond FY24 would depend on the performance of the US generic business. Meanwhile, Ind-Ra expects inspections by the US drug regulator to increase in FY24, but it is unlikely to cause any significant disruptions to pharma companies.
Revenue Mix
The rating agency said that the Indian formulations business to grow 10%-11% YoY in FY24, led by price and new launches growth. The companies in the domestic formulation business reported a revenue growth of 6.2% YoY on an aggregate basis, despite lower growth in the acute therapy segment and price impact, on the back of higher prices and strong traction in the chronic segment in Q1FY24.
The US business of domestic pharma companies continued to report strong growth at 26.6% YoY in Q1FY24 as against 12.4% YoY in Q4FY23, due to the launch of generic niche Revlimid, ongoing drugs shortages, easing pricing pressure. The rating agency expects stabilization in price erosion in the US business for the rest of fiscal 2024.
Further, the rating agency said that API manufacturing companies’ revenue growth moderated to 8.7% YoY in Q1FY24 as against 15.2% YoY in 4QFY23. The rating agency also added that their EBITDA margins will remain so due to a moderation in API prices. Ind-Ra rated API companies have shown a mixed performance during the quarter.
Sales growth stood at 8.5% YoY in its rest of the world business in Q1FY24. The companies have shown a mixed performance, while the Europe business continue to deliver strong growth momentum in the quarter.