• The Indian pharmaceutical sector is expected to register a revenue growth of 8-10% this fiscal year, driven by robust exports and consistent domestic demand.
• Revenue is almost evenly divided between domestic sales and exports, with formulation exports expected to grow 12-14%.
• Domestic revenue is likely to see a growth of 7-9%, primarily driven by price, with volume growth supported by new product launches.
• The sector's strong financial health and focus on inorganic growth opportunities are expected to further bolster its growth trajectory in the coming years.

The Indian pharmaceutical sector, which recorded a growth of approximately 10% last year, is once again poised to register a revenue growth of 8-10% this fiscal year, according to a recent report, published by rating agency Crisil.

The report suggests that this growth is underpinned by robust exports to regulated markets, a resurgence in exports to semi-regulated markets, and consistent domestic demand. The pharmaceutical sector in India, as per a study by CRISIL of 190 drug manufacturers, accounted for about half of the Rs 4.1 lakh crore market in the last fiscal year.

Exports and Domestic Sales: A Balanced Revenue Split

The revenue generated by this sector is almost evenly divided between domestic sales and exports. Domestic formulation revenue is derived equally from chronic and acute therapeutic segments. In terms of exports, formulations and bulk drugs contribute approximately 80% and 20% respectively. For formulations, 58% of exports are destined for regulated markets, while 42% are for semi-regulated markets.

Aniket Dani, Director of Crisil Market Intelligence and Analytics, stated, Formulation exports are expected to grow 12-14% in rupee terms this fiscal. The regulated markets of the US and Europe will witness a growth of 13-15%, driven by continued drug shortages, easing pricing pressures in the US generics market, and the volume uptick expected from new product launches as well as players shifting focus towards niche molecules and specialty products.

Domestic Revenue and Financial Health: A Steady Growth

Dani further added that exports to semi-regulated markets are projected to grow 8-10% this fiscal, propelled by improving forex reserves, strengthening of local currencies against the dollar, and easing economic crises in select African and Latin American countries. The report also indicated that domestic revenue is likely to see a growth of 7-9% this fiscal, primarily driven by price, with volume growth to be supported by new product launches.

Price growth will be led by the non-NLEM (National List of Essential Medicines) portfolio, as price growth for the NLEM portfolio will remain muted, due to minimal change in the Wholesale Price Index (WPI) last fiscal. CRISIL anticipates the chronic segment to be the key revenue contributor amid increasing lifestyle-related diseases and continued emphasis on health awareness since the pandemic.

Inorganic Growth Opportunities: A Strategic Focus

The report also highlighted that steady growth in revenues, healthy operating profits, and a stable working capital cycle at about 50 days will keep cash flows strong. The financial risk profile of the CRISIL-rated players remains comfortable, with debt to earnings before interest, tax, depreciation, and amortisation ratio at 0.9 times and interest coverage at over 12 times in fiscal 2025.

Aditya Jhaver, Director, Crisil Ratings, stated, "With strong cash flows and healthy balance sheets, players are increasingly focusing on inorganic growth opportunities in the API and the formulation space, to either diversify the product portfolios by acquiring the brands/businesses and/or to consolidate market share in the targeted therapeutic areas."

Jhaver further added, "While these acquisitions involve sizeable debt funding and a temporary moderation in the financial risk profile, overall credit profile continues to drive comfort from the improvement in the business risk profile, with immediate contribution accruing from acquired entities."

The Indian pharmaceutical sector is set for another year of robust growth, driven by healthy exports and steady domestic demand, coupled with its strategic focus on inorganic growth opportunities, is expected to further bolster its growth trajectory in the coming years.

For instance, in the fiscal year 2015-16, the Indian pharmaceutical sector witnessed a similar growth pattern, driven by robust exports and steady domestic demand. The sector's revenue growth was around 9.4% in that fiscal year, according to a report by the India Brand Equity Foundation (IBEF).