BackIndian pharma companies' sales to rise after resilience in FY21: Fitch Ratings
Fitch expects sales of drugs used to treat acute medical conditions and elective procedures to continue to recover in FY22.
PremiumIndian pharmaceutical companies’ sales will grow robustly in the financial year ending March 2022 (FY22) as sales normalise in categories affected by the pandemic in the previous year, said Fitch Ratings. Most Indian pharma companies reported resilient operating performance in FY21, benefitting from gradual stabilisation after 1QFY21, geographical diversification and sales of pandemic-related drugs.
Fitch expects sales of drugs used to treat acute medical conditions and elective procedures to continue to recover in FY22. Sales in these categories fell in FY21 as travel restrictions reduced doctor visits and hospitals prioritised Covid-19 treatment over elective procedures. Sales of some of these products are still 10% below pre-pandemic levels, although they started to recover with the easing of curbs.
The risk of further waves of infection remains significant in markets with slow roll-outs of vaccination, including India, but healthcare systems are better prepared after the second wave, which should limit the impact.
We believe revenue in key markets, including the US and Europe, will also benefit from a healthy pipeline of generic drugs and further progress in launches of specialty drugs by larger companies. This should help to offset the effects of continued price erosion, particularly in the US. Several companies have taken steps to remediate shortcomings pointed out by the US Food and Drug Administration (USFDA) previously in their plants, but travel restrictions delayed re-inspections last year. Progress in resolving the USFDA issues after resumption of inspections could accelerate new launches.
We also expect sales in the near term to be boosted by demand for Covid-19 related drugs, particularly in India. Some companies say they will expand production capacities in active pharma ingredients (API) and injectable products to take advantage of government incentives and increased demand.
Many of the leading companies reported stable or better operating margins in FY21 despite lower sales in the US, where margins are typically wider. This was due to their focus on cost savings, and lower travel and marketing expenses during the pandemic. Companies like Glenmark and Lupin also benefitted from lower R&D expenses. Sun reported higher margins due to increased contribution from more profitable specialty drugs.
Fitch expects costs to rise to normal levels in FY22 as companies step up marketing and R&D activities. Nonetheless, higher sales will cushion the impact on margins. Resilient operating performance enabled Glenmark and Jubilant Pharma to proactively refinance their US dollar notes maturing in 2021. Most companies were prudent about growth investments in FY21, which enabled debt repayments. We expect capex to rise in FY22, but this should not affect the strong financial flexibility at most companies, it said.
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