Rebound In Domestic Pharma Market Boosts Confidence

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NEW DELHI : The NSE Pharma Index has rebounded almost 9% from its lows in June. While some of the gains can be attributed to improving sentiments in equities, the pharma market is also showing signs of a revival since June after a subdued April and May albeit on a high base.

The Indian pharma market (IPM) grew 14.1% from the year earlier in July after reporting strong 16.6% growth in June, according to pharma market researcher All Indian Origin Chemists and Distributors Ltd. IPM had declined 3.3% from the year-ago in May, after falling 4.8% in April. The overall growth of IPM for the quarter stood at just 2.1% year-on-year.

The impact was visible on the performance of a majority of pharma companies during Q1. Cipla, Lupin, Zydus, Cadila, which derive substantial contributions from the Indian market saw domestic formulations sales fall 8-17 % in Q1. Sun Pharma reported just 2% growth. The rebound in IPM growth may now boost the July-September quarter domestic growth for these companies.

The market is a key growth driver especially in the current scenario wherein companies having exposure to the US markets are facing pressure on pricing due to higher competition in base business.

“IPM data for July provides comfort on the outlook for the India formulations business, which accounts for 20-65% of the revenues and a majority of profitability for our coverage names,” said analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd. IPM remains a focus segment for most Indian pharma names as it offers consistent growth with a healthy margin, the analysts added.

“The IPM continues to offer sustainable growth opportunities with attractive margins and returns with much lower required investment versus export markets,” they said. Not surprisingly, most companies are stepping up focus on the Indian market in recent years.

For instance, Dr Reddy’s Laboratories had a sizable presence in the US, but also decided to focus on India . In the US it is now looking at niche lower competition molecules and products, after divesting loss-making proprietary products. Others are also planning to expand sales and beef up marketing teams in India.

Gynaecology, respiratory, pain management and dermatology were the major growth drivers for the IPM, with y-o-y growth of 24%,22.3%,16.9%, and 16.7%, respectively, said Motilal Oswal Financial Services analysts. It indicates both chronic and acute segments are growing at an impressive rate, they added.

Among the top 30 firms, Merck India, Natco Pharma, AstraZeneca Pharma India, Intas Pharmaceuticals, JB Chemicals and Pharmaceuticals, and Emcure Pharmaceuticals grew (20-55.6% y-o-y), notably higher than the IPM growth in July, said analysts.

Growth in July was driven by volumes (6.4% y-o-y), price hikes (6.3%) and new products (1.5%). Inflation-linked price growth for products under the National List of essential medicines has also enabled growth.

Going forward, the products going off-patent will lead to new launches. As anticipated, the IPM saw a flurry of generics for MSD’s anti-diabetic drug Januvia (Sitagliptin) after the brand’s patent expired. Overall analysts are encouraged by the IPM growth. “We believe chronic-driven companies would have better opportunities to grow as covid is now past domestically,” said Anand Rathi Research.

In view of continued macro headwinds (higher input and freight costs) and challenges in export markets (US price erosion), trends in India’s formulations market are crucial for earnings trajectory of Indian firms, HSBC analysts said.

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