Credit metrics of leading pharma companies to remain stable: ICRA

The global demand scenario for Indian pharmaceutical industry is largely expected to remain stable due to inelastic nature of prescription drugs, investment information agency ICRA has said.

Though some impact on volume growth will be felt owing to Covid-19 lockdowns and lower economic growth, the impact will be felt more in less developed countries, which are additionally negatively impacted owing to low crude oil prices.

Besides, higher domestic sales during March led by stocking up of chronic and essential medicine will also have some impact on FY21 sales, it said in the report on trends and outlook.

But worryingly, the domestic pharmaceutical industry is highly dependent on imports with more than 60 per cent of its active pharmaceutical ingredients (API) requirement being imported. In some specific APIs like cephalosporins, azithromycin and penicillin, the dependence is as high as 80 to 90 per cent.

 

Of the total imports of APIs and intermediates into India, China accounts for 65 to 70 per cent.

ICRA said the recent introduction Rs 10,000 crore bulk drugs park and production linked incentives for API manufacturers by the government will lead to reduced dependence for the domestic formulators on imports from China and augurs well in the long run to manage supply disruptions.

The incentive scheme covers 53 APIs, which are critical from import dependence on China with few API or key starting materials (KSMs) being entirely imported. Overall, India currently imports more than 50 per cent of the API or KSMs from China.

On the other hand, said ICRA, the US revenue growth for Indian pharma players remains exposed to delays in re-inspection of facilities under warning letter as US Food and Drug Administration has put on hold all routine inspections till further notice. Pre-approval inspections for specific products started in August based on desktop audits.

Additionally, the ban on exporting several products within European Union will negatively impact Indian companies with European manufacturing bases. But Indian players will benefit from rupee depreciation vis-a-vis US dollar and euro.

However, a part of the benefit will be nullified as several emerging market currencies have sharply appreciated against rupee.

Hence the credit metrics of leading pharma companies are likely to remain stable due to steady growth prospects in regulated markets and limited dependence on bank borrowings, said ICRA.

"The key sensitivity to our outlook remains productivity of R & D expenditure, operational risk related to increased level of due diligence by regulatory agencies and price controls.