Chennai: Stability in price erosion in US generic drugs and softening of raw material prices will see margins of pharma companies improve in FY25.
Normalisation of drug prices in the US and a softening in raw material prices will help companies rated by India Ratings achieve an EBITDA margin of 24 per cent in FY25, better than the 22 per cent expected earlier. In 1HFY25 EBITDA margin stood at 25.1 per cent.
As per the data of the US-based Centers for Medicare and Medicaid Services (CMMS), price erosion in the oral solid dosage segment in early part of 2024 stood at a high of 15 per cent. Complex generics like injectables and inhalation drugs showed a price erosion of 6-7 per cent and simple generics saw high single-digit price erosion. Stabilisation in price erosion due to drug shortage has improved margins of Indian pharma companies. The US is facing an active shortage of 233 drugs across 22 therapeutic categories.
As the largest provider of generic medicines worldwide, India holds a 20 per cent share in global supply by volume and accounts for nearly 40 per cent of the generic demand in the US, finds Brickwork Ratings.
Further, lower raw material prices are also aiding margins. API prices have witnessed a steep decline over the past one year due to aggressive Chinese pricing and dumping, stabilisation of supplies from China, increased capacity led by past capex and production-linked incentive schemes, and weakness in export demand. The fall in domestic API prices have been in the range of 15-40 per cent.
Pharma companies are also expected to maintain their growth momentum due to strong growth in the US market led by stabilised price erosion, shortage of drugs, niche launches, including generic Revlimid and Mirabegron, volume growth in base product portfolio, and increased traction in specialty products.
Growth opportunities in the formulation business in India also helped pharma companies. The domestic formulation business reposted low double-digit growth in 2QFY25 against high single-digit growth in FY24, led by growth in chronic segments.
