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Business News/ Industry / Manufacturing/  Pharma industry in a sweet spot after market correction
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Pharma industry in a sweet spot after market correction

Analysts say most concerns have been priced in and that the sector may fare better in future

Analysts also said raw material overhang and supply chain headwinds will continue in the better part of FY23. bloombergPremium
Analysts also said raw material overhang and supply chain headwinds will continue in the better part of FY23. bloomberg

NEW DELHI : The Nifty Pharma index has declined 4.65% in the year so far as market volatility and raw material prices surged following the Russian invasion of Ukraine, but analysts believe that a large part of the concerns have been priced in, and the sector is expected to fare better in the coming quarters.

“We expect the raw material overhang and supply chain headwinds to continue in the better part of FY23," said analysts at Antique Stock Broking. The sector outlook, however, remains positive, according to the broking firm, as most companies under its coverage have seen earnings downgrades, and at current stock prices, analysts find the risk-reward ratio favourable for the overall sector. Antique Stock Broking continues to prefer large-cap pharma stocks having exposure to domestic and US formulations markets compared to those manufacturing active pharma ingredients (APIs).

In the US, the world’s largest pharmaceutical market, the outlook for Indian companies remains strong, going by the large number of product launches lined up for FY23. These are likely to help the companies tide over pricing pressures they have been facing on their existing business.

Besides, easing of travel curbs will mean more frequent visits by US drug inspectors. This, in turn, can lead to clearances of more facilities under the USFDA’s scanner for long, said Ranvir Singh, an analyst at Sunidhi Securities.

For instance, Lupin’s Goa facility that had received a USFDA warning letter in 2017 received an Establishment Inspection Report (EIR) in the December quarter. EIR means successful completion of inspections of a facility and indicates that the facility is compliant with the norms set by the USFDA on good manufacturing practices.

According to analysts at Motilal Oswal Securities Ltd, this was a big relief for Lupin from a compliance standpoint, given the reasonable contribution of the Goa plant in its existing business as well as double-digit Abbreviated New Drug Applications (ANDAs) pending approval from the site. Similarly, Cadila Healthcare is awaiting clearance of its Moraiya facility to lift its US sales, just as many other pharma companies. The clearence will mean ramped-up supplies, and an increased pace of approval for new product launches in the US.

Singh feels that over the next two-three months, the pharma sector will see a much better outlook.

Meanwhile, companies remain well-placed for growth in the domestic arena, too, with growth likely to be propelled by a new range of chronic care products. Though the June quarter may pose challenges due to a high base on the back of extraordinary gains from sales of covid treatment products, the overall outlook for FY23 remains strong.

Analysts at Anand Rathi Securities expect the Indian pharma market to grow 10-15% led by volume recovery and price hike, which would boost market growth. This is likely to be driven by 10.7% price hikes from April (in line with the WPI) for the product range under the pricing control (NLEM). As the pandemic has subsided, the exceptional growth of the past in acute therapies may not be repeated; however, emerging lifestyle diseases would boost demand for chronic drugs, they added.

With the outlook in India and the US staying robust, many Indian pharma companies may emerge as surprise winners of the Ukraine conflict as they are expected to see a surge in sales in Russia with the exit of western companies.

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ABOUT THE AUTHOR
Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Published: 29 Mar 2022, 01:37 AM IST
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