India Ratings and Research (Ind-Ra) does not expect Indian pharmaceutical companies to sustain the healthy operating margins reported during 3Q FY21 and 9M FY21.
The India formulations business grew year-on-year (yoy) during 3Q FY21 and 9M FY21 while growth across other segments was lower both on quarter-on-quarter (qoq) and yoy basis, it said on Wednesday.
Ind-Ra witnessed stable EBITDA margins on a quarterly basis as revenue increase gained momentum in India formulations business, attributed to Covid-19 related products while product launches aided the US business' margins.
"The EBITDA margins expanded around 300 basis points yoy during 3Q while they have started tapering off on a qoq basis due to elevated operating expenses as cost savings in lieu of the digital initiatives undertaken during 1H FY21 have not been sustainable." The healthy performance during 3Q FY21 is attributed to improving revenue growth in key geographies of India and the United States with cost optimisation initiatives continuing albeit with lower intensity.
The India business growth was led by the increased number of prescriber interactions with patients and increased sales and marketing activities by pharmaceutical companies with unlocking and higher sales of Covid related products.
Growth was also led by continued outperformance of chronic therapies. The higher growth witnessed in other segments (US, API, RoW) during 2Q FY21 has started normalising due to increasing competitive intensity with the unlocking of economic activities.
While currency depreciation impacted growth in key RoW markets (Brazil, Russia), API business has started normalising with lower pricing and pre-buying benefits.
As the unlock phase gains momentum due to vaccinations, Ind-Ra expects India business to revert to its historical growth of 8 to 10 per cent over the medium to long term while the US generic business to see a 4 to 5 per cent annualised price deflation.
Ind-Ra also expects the RoW markets to witness volume growth in double digits as the vaccination drive accelerates in these markets. The analysis is based on the reported segmental results of 13 large pharma companies.
