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March 28, 2018

CRISIL Research Sector Round-up: Pharma recovery nigh

Operating profit to jump 20-22% in fiscal 2019


After a bruising two years, the Indian pharmaceuticals industry appears set for a sharp turnaround in fiscal 2019.


CRISIL Research projects earnings before interest, taxes, depreciation and amortisation (EBITDA) to increase 20-22% on-year – the fastest pace of growth since fiscal 2014. Revenue is expected to improve 9-11% on-year.


The projected good run is premised on a decline in regulatory alerts for larger companies as well as a bigger pipeline of high-value drugs compared with the past two years.


The reversal in fortune will be primarily on the back of strong growth in the overseas market, particularly to regulated markets of the US and the EU, amid continued healthy growth in the domestic market. Although exports account for 50% of the revenue of the Indian pharmaceuticals industry, its contribution at the EBITDA level is higher owing to relatively superior profitability of products sold in regulated markets.


In fact, the haemorrhage over the past two years can be pinned squarely on dwindling exports to regulated markets, particularly the US and the EU. These two regions together account for over 90% of regulated market exports and close to 50% of formulation exports from India. Lower generic opportunity, rising competition, supplier consolidation, and increase in regulatory alerts on Indian plants were the major headwinds.