Pharma sector's overall growth rate still remains slow and could well slow down the rise of the Nifty Pharma index which gained about 27% year to date
Pharma companies could still offset the cost of lower sales since operating costs have also been low
The Indian pharma market has seen an encouraging pickup in total sales in June, but the pace of recovery is still slow. After a drop in April and May, the total pharma market grew about 2.4% year-on-year (y-o-y) in June.
The covid-19 pandemic that saw patient visits to doctors and hospitals decline during the lockdown is slowly reversing. But the overall growth rate still remains slow and could well slow down the rise of the Nifty Pharma index which gained about 27% year to date.
Volume growth is not yet of much comfort and fell about 11.8% y-o-y. While some of the fall was offset by price increases and new launches, the slowdown in patient inflow still remains a worry. Analysts say that the monsoon season could see a better growth in volumes, but normalcy is still some time away. A jump in covid-19 infections poses a threat to patient visits to hospitals and clinics. That’s evident in the slow growth in the anti-infectives and pain segment.
However, demand for chronic drugs and vitamins is encouraging. Chronic segment such as diabetes and cardio drugs continue to do well. Growth rates here have been positive, but marginally lower. Another thing to note is that generics as a segment has seen an improvement in sales, which suggests there is a higher demand.
But pharma companies could still offset the cost of lower sales since operating costs have also been low. “On the positive side, we expect Indian pharma companies to record lower travel, sales promotion and R&D expenses during the quarter. This is likely to lead to very modest or marginal decline in other expenses y-o-y. There is a possibility that the drop could trigger rationalisation of costs going forward," said Nomura India analysts in a client note.
However, analysts expect growth in the pharma sector to be mixed. Companies that have a high dependence on the domestic market would be able to navigate the current slowdown better. But companies with a higher dependence on foreign markets, particularly the US, could get hit harder.
Nevertheless, while the run-up in the sector has been swift during the last year, the growth momentum could well slow further from here. This can already be seen from the Nifty Pharma index gains of just about 2% this month.
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