Indian drug makers' capex to surge 40% : CRISIL

Says capex spending of eight out of the 20 pharma companies will almost double by fiscal 2018

The capital expenditure (capex) of India’s top 20 pharmaceutical companies, which contribute nearly two-thirds of the country’s exports, will increase 40% to over Rs 50,000 crore till fiscal 2018, as they will have to focus more on the off-patented US drug market.

The capex of top 20 companies was about Rs 36,000 crore in the last four fiscals, rating agency Crisil said.

"The drug makers are expected to pay greater attention to the regulated markets, especially the US, to take advantage of substantial patent expiries expected in the medium term, and ever-increasing demand for generics. The regulated markets require higher investments to meet their stringent standards," the report said.

Out of this lot of 20, the capex spending of 8 companies – which currently generate a majority of revenues domestically – will almost double by fiscal 2018, growing at a much faster pace compared with the rest that are already focused on the regulated markets.

Ramraj Pai, President – Ratings, large corporates said, “Increasing domestic pressures will force Indian companies to seek greener pastures abroad. This will lead to higher expenditure related to compliance, research, and manufacturing capacities. We see their capex rising around 200 basis points to nearly 8% of operating income by fiscal 2018 from 6% now.”

The factors which will drive the increase in capex include the compliance with regulations of the USFDA, increase in R&D spending and investments to build FDA-approved manufacturing facilities.

As on March 31, 2014, the top 20 companies had around 1,000 abbreviated new drug applications (ANDAs -for approval to sell generic versions) pending approval from the US FDA compared with around 715 as on March 31, 2010.

Anuj Sethi, Director, CRISIL Ratings said, “Aggregate gearing of the 20 companies has remained healthy at around 0.5 times over the last 3 fiscals. Liquidity is strong, too, with cumulative cash and liquid investments of nearly Rs 15,000 crore as on March 31, 2014. Both these strengths will support their credit profiles.”