Domestic growth seen lifting Sep quarter earnings at pharma firms
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Notwithstanding compliance issues and pricing pressures in the US, a pick-up in domestic sales in the September quarter is likely to help the earnings of Indian pharmaceutical companies, with analysts expecting most firms to continue reporting double-digit growth in the subsequent quarters.
Higher sales of anti-malaria drugs, anti-infectives and respiratory products during the monsoon (when incidences of dengue, malaria, chikungunya, cold and flu, and waterborne infections rise) as well as firm growth in drugs for chronic diseases have pushed up the overall domestic market growth during the quarter, analysts said.
“The underlying growth continues to remain strong in Indian pharma industry. While the July-September quarter will have a positive impact of seasonality due to monsoons, double digit growth in the industry should more or less continue in subsequent months,” Glenn Saldanha, chairman and managing director of Glenmark Pharmaceuticals Ltd said.
Companies with a good presence in the acute therapy segment are likely to report robust growth in the domestic market in the September quarter, Emkay Global Financial Services said in its pre-earnings report.
Cipla Ltd and Ipca Laboratories Ltd are expected to be the biggest beneficiaries in this space, the brokerage added.
According to market research firm AIOCD-AWACS, the Indian pharmaceutical market grew at an average rate of 12.8% in the September quarter against 11.5% in the corresponding period a year ago and 6.4% growth in the June quarter.
Domestic growth in the June quarter was marred by reduction in prices of products, which are under the government’s price control order, and a ban on the sale of 344 fixed-dose combination (FDC) drugs.
The government in December expanded the National List of Essential Medicines (NLEM), bringing in 376 drugs under price control from 348 earlier. The NLEM is revised once every three years.
In March, the government ordered a ban on certain FDC drugs. The Delhi High Court has passed a stay order on the ban and the matter is currently in court.
Although the industry continues to feel the brunt of these regulatory actions, the impact of these measures on sales in the coming months may not be as severe as it was in the June quarter, analysts and industry officials said.
Most companies have carried out inventory adjustments for price cuts and taken products off the market that came under the purview of the FDC ban, a senior official at Alkem Laboratories Ltd said, adding that domestic sales growth is likely to improve going forward as companies are launching and aggressively promoting those products that are outside price control.
The recent improvement in sales has increased optimism that the domestic pharma market will maintain the 10-12% growth rate in the current financial year despite regulatory issues.
On an annualised basis, the impact of drug price controls on the industry is estimated to be 2-3%, analysts said.
“The price increase for non-NLEM products up to 10%, volume growth and new product introduction are likely to drive the domestic pharma market. We expect the growth momentum to continue, driven by growing demand in lifestyle segments. The domestic market would grow at ~12% in FY17,” Ranjit Kapadia, analyst at Centrum Broking said in a report.
However, some believe that the government’s actions have already done the damage and the seasonal growth in the September quarter and a normalised growth rate in the second half of the year will not be able to offset that.
D.G. Shah, secretary general of industry lobby group Indian Pharmaceutical Alliance, said the domestic market growth rate may slip to high single digits in FY17 due to the price controls and the sudden ban on some FDCs.
Volume growth may not be able to significantly compensate for the decline in value growth and with the FDC ban and stricter price controls, it is uncertain whether domestic pharma market will continue to grow in double digits, said an analyst, who did not wish to be named.
“NLEM list has expanded significantly since the original list and with every addition in the list, it has impacted the overall pharma industry... Globally, Indian pharma is the fastest growing industry with consistent double digits growth due to increase in volume growth. We expect the double digits growth to continue in India for next few years,” Glenmark’s Saldanha said.
While risks related to government policy changes prevail, broader economic growth, rising disposable incomes and increasing affordability for medicines will continue to support the industry’s growth rate of 10-12% witnessed over the last couple of years, analysts said.