Chennai: The pharma sector has seen improvement in the demand scenario in key export markets such as the US in the second half of FY24. Better volume growth led by drug shortages is expected to support single-digit revenue growth of pharma companies in FY25.
The weak recovery in domestic and export realisations post-pandemic for bulk drugs and intermediaries had led to pharma companies reporting lower operating EBITDA margins post-pandemic than pre-pandemic level. While exports realisation of key APIs has seen a consistent drop post-pandemic, paracetamol prices, which had grown until FY23, also witnessed a sharp correction in the first 10 months of FY24.
“The demand scenario has started improving since 2HFY24, leading to volume growth and stabilisation of prices. Moreover, additional capacities coming through the PLI scheme are unlikely to dent the pricing situation, as it is a targeted scheme towards specific molecules. While API pricing has likely bottomed out, the Red Sea crisis causing higher working capital requirements led by higher inventory days is also unlikely to have a material impact on the credit metrics,” said Vivek Jain, Director, Corporate Ratings, Ind-Ra.
According to Care Ratings, with the stabilisation of raw material prices, freight rates, and easing of pricing pressure in the US generics market along with a focus on complex and specialty products, the operating margin of industry players to improve by 100-150 bps over FY24-FY25 compared to FY23.
Ind-Ra expects the positive effects of de-risking measures such as increasing sales to the non-US markets, focusing on high-margin and high return-on-equity, branded generics, and increasing the share of API manufacturing will help the companies in the medium to long term. Top pharma companies are likely to see revenue growth of 10-11 per cent with operating margins of 17-20 per cent through FY25-FY26.
