With inelastic demand for drugs and resumption of production to the near pre-COVID levels by Q3 FY 2021, revenue growth in FY 2021 is expected to be 7-9% in FY2021 according to leading credit agency ICRA.

The revenue growth in FY 2022 is expected to be slightly better at 8-11%, though lower incidences of acute diseases, lesser OPDs and elective surgeries may continue to have some bearing on growth and will depend upon the course of the pandemic.

During FY 2021, ICRA has downgraded four entities and upgraded three. The company has not taken any rating action arising purely out of COVID-19 related disruptions during the last eight months.

ICRA has predicted a very positive picture for the pharmaceutical industry in the coming times. Out of 36 companies, 34 entities have received long-term ratings while two entities have short term ratings, both rated at A1+. Driven by the growing scale in international markets, expanding product portfolio in both branded generic and pure markets, the business profile of some of the key formulations companies continues to strengthen over the decade, enjoying a positive credit ratio.

Profitability during H1 FY2021 has improved owing to lesser overheads during the lockdown period – primarily travel, marketing and selling expenditure. The trend is expected to reverse once the pandemic situation resolves; FY2022 margins will remain in line with pre-COVID levels.

The API/KSM (Key Starting Materials) supplies from China, which were initially hit due to the COVID-19, have resumed gradually since March 2020 and are nearing the normalcy levels. Approximately 60% of the APIs/KSMs consumed is imported from China. Production disruptions owing to restrictions in the mobility of manpower and materials eased significantly after the first few weeks of the lockdown. At present, the production has reached 90-95% of the pre-COVID levels.

Road ahead
As per the ICRA report, an improved economic outlook and resumption of normal activities will support higher out-of-pocket spend on the consumption of drugs. The continued investments in R&D towards complex and difficult-to-manufacture generics, biosimilars for the US and EU markets will support new launches and growth.

India plans to set up a nearly Rs. 1 lakh crores (US $1.3 billion) fund to provide a boost to companies to manufacture pharmaceutical ingredients domestically by 2023. The government of India has offered Rs. 6,940 crores (US $942.8 million) production linked incentives (PLI) between 5–20% for incremental sales and plans to set up three mega drug parks to drive sustainable cost competitiveness.

With around 30% year on year growth, the Indian pharmaceutical sector is expected to reach US $100 billion by 2025.

The key sensitivity to ICRA’s view remains productivity of R&D expenditure, increasing competition in the U.S. generics space and operational risks related to an increased level of due diligence by regulatory agencies. Among the key challenges remain the delay in resolution of warning letters, delayed physical inspection audits due to COVID-19, compulsory genericization for the domestic market and steep price controls which can adversely impact profitability.