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Home >Markets >Mark To Market >Pharma stocks are on fire, but domestic growth rates may taper in FY21

Domestic pharma’s growth rate this past year has been remarkable, proving to be a buffer against sluggish overseas sales. While other sectoral indices are in the red, the Nifty Pharma index gained about 14.4% year to date. However, those looking for these growth rates to sustain may need to pencil in a deceleration in the home market.

Domestic sales of products in chronic and acute therapies have been robust in March, although lower compared to February. February’s sales growth stepped up 12.1%, and that of March climbed 8.9%.

Analysts say sales were driven by some early buying in March, though not to the extent seen in February. Still, Indian pharma’s 9.7% growth in FY20 has been encouraging, considering that in FY19 the 9.6% growth rate came off a lower base.

Health report.
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Health report.

But worries about domestic pharma may have just begun, and may eat into sales growth in FY21. Social distancing norms have already seen visits to hospitals and doctors decline. In fact, the lockdown has reduced the number of people visiting diagnostic chains, which will also have a bearing on FY21 sales growth.

“Fewer visits to doctors would affect prescription generation. This, we believe, would reduce the pace of new prescription generation in chronic therapies, a key driver of volume growth in India. With social distancing and greater awareness of hygiene, acute ailment cases could also decline in the near term," said analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd in a client note. Anti-diabetic and cardiac therapies exhibited high (over 11%) growth rates in FY20.

The trend of fewer doctor visits is likely to be quite sharp in the first quarter, with spillovers stretching to the second quarter, depending on how soon the covid-19 pandemic is reined in. This could result in lower volume growth in FY21.

Besides, lockdown restrictions are hampering sales and logistics of pharma companies, and are likely to bruise product launches in the first half of FY21. Product launches brought about 28% to overall sales growth in FY20.

Single-digit price hikes, though, persisted in FY20, and made up the bulk of the increase in revenues. “Pricing has been steady for the last few years and will hold at 4-5% next year as companies are hiking prices wherever possible in the last 2-3 years. Prices of controlled drugs have also seen slow price increases," said Anshuman Gupta, healthcare and pharma analyst at Investec Capital Services (India) Pvt. Ltd.

But with lower volumes and new-product growth, analysts at Nomura have chalked out about 5% sales growth for FY21—about half the growth rate of FY20.

Of course, the export market is expected to perk up in the next one-two quarters as India becomes a critical cog in the supply chain for drugs globally. Pricing in the export market has been better, which will aid margins.

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