Growth in India’s pharmaceutical market is picking up. Sales grew 11.3% in January, up from 10.1% last December and 6.6% in November 2018.

Even so, there are some concerns. One, price hikes continue to drive growth. Volume growth stood at 3.8%, far lower than the 11.3% growth in revenues. While volumes grew at a better rate compared to the 2.5% growth in December, the recovery is clearly not enough to lift trend rates, which is also a crucial factor for companies’ earnings.

Average volume growth in the three months to January is rather subdued at 1.9%, show calculations by Motilal Oswal Securities Ltd. Revenues, meanwhile, increased 9.3% reflecting a large contribution from price hikes. Even so, sales growth is not significantly higher than what the industry has seen recently.

In fact, average sales growth on a three-month rolling basis has been less than, or close to, 10% for some time now. “3M (three-month average) growth continues to remain below 10% and has been in the range for past two years. We expect growth to remain below 10% going forward also," Jefferies India Pvt. Ltd said in a note on 25 February.

Perhaps the range-bound growth rates reflect the constraints of the local sellers. Even as new products are making meaningful contribution to sales, they are yet to emerge as key growth drivers. An analysis by Jefferies India shows that growth in most companies continued to be driven by their top 10 products.

Given the quantum of investments required to develop new products, the focus on existing large products is not unusual. But in an industry where fortunes are contingent on products and portfolio evolution, the relatively low contribution from newer or smaller products is discomforting.

“Growth for most companies is led by the top 10 products. This is a negative, in our view, as it shows that the smaller brands are not witnessing faster growth and portfolio expansion. This puts a cap on future growth," adds Jefferies India.

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