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Home >Markets >Mark To Market >API price normalization: Indian manufacturers well placed to reap long-term growth benefits

Indian API (Active Pharmaceutical Ingredient) manufacturers have remained in focus ever since the start of the pandemic. China's supply disruption earlier and rising API prices thereafter have benefitted Indian manufacturers during the past few quarters. Though with normalizing inventories the API prices may normalize in the near term, nevertheless Indian manufacturers remain in a sweet spot and will continue getting opportunities to drive their growth over the long term too.

Global manufacturers aiming to de-risk their supplies from China will continue exploring India's supply options. This will continue offering opportunities to Indian manufacturers. The Indian pharma manufacturers already supplying ingredients and generic formulations to various developed markets already have manufacturing facilities compliant to the US or European manufacturing norms.

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Post the onset of the pandemic as global pharma manufacturers have realized the necessity to look at supplies outside China. Amongst the options available to them are setting up captive API facilities or look at European or US drug manufacturers to help them meet their requirements. Nevertheless, both are higher-cost options, and manufacturers facing pricing pressure for their range in the US already are looking at cost-efficient routes. Hence Indian manufacturers stand an opportunity and may continue reaping benefits from the same.

Analysts at Emkay Global Financial Services Ltd say that “ Covid-19-related price increases in API and intermediates normalize with inventories normalization. Nevertheless, the expert suggests that the API industry is in a sweet spot with multi-year tailwinds with occasional hiccups expected."

This should cheer up and encourage investors betting big on Indian pharma growth. Indian pharma companies already have been accruing benefits of strong contributions from Covid-19 related drugs. Even their Indian growth has been fueled by the Covid-19 portfolio for many companies. India formulations sales grew 5.5% in Q2 FY21, driven by sales of Covid’19-related drugs, traction in chronic therapies, and acute therapies returning to growth say, analysts. API was the key growth driver of the companies we cover say analysts at Anand Rathi India Equities. API sales grew 36.6% to Rs1890 crore while the API contribution to overall sales rose to 12% (from 10% a year ago) suggests Anand Rathi India Equities data. The leaders included Natco Pharma, whose API division reported 193.7% growth while Cadila Healthcare’s API division grew 52.2%.

Though Covid-19-related price increases in API and intermediates may normalize with normalizing inventories, some premium on China prices still can be garnered. Our expert is of the view that quality-focused and reliable API suppliers could get a 10-20% pricing premium over their Chinese competitors say analysts at Emkay Global.

The API segment for most pharma manufacturers thereby remains a key growth driver for their earnings, in addition to formulations and generics.

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