Indian Pharmaceuticals Industry Report - Pharmaceuticals Sector Research & Analysis in India - Equitymaster
X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2016 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Investing in India? Get Equitymaster Research  

 
 

Pharmaceuticals Sector Analysis Report

 
[Key Points | Financial Year '15 | Prospects | Sector Do's and Dont's]

  • The Indian Pharmaceutical market (IPM) accounts for approx. 1.4% of the global pharmaceutical industry in value terms and 10% in the volume terms. The IPM is valued at Rs 860 bn for the year ending March 2015. The growth in 2015 stood at 12.9%. Owing to robust historical growth and future prospects, many MNC companies have active presence in the Indian pharma space.

  • The IPM is highly fragmented with about 24,000 players (330 in the organised sector). The top ten companies including domestic and MNC companies make up for more than a third of the market. The market is dominated majorly by branded generics, which constitutes nearly 70% to 80% of market.

  • Besides the domestic market, Indian pharma companies also have a large chunk of their revenues coming from exports. Major companies are focusing on the generics market in the US, Europe and semi-regulated markets, others are focusing on custom manufacturing for innovator companies. Biopharmaceuticals is also increasingly becoming an area of interest given the complexity in manufacture and limited competition.

  • The past few years have been glorious ones for the Indian companies, as major blockbusters lost their patent protection, paving way for generics. However, every passing year is leaving lower patented drug opportunities for the Indian companies for the launch of generics. Thus, Indian pharma companies have increased their R&D expenses. The companies are spending more to establish niche product portfolios for the future.

  • The year gone by was one where M&A activity continued to attract interest of companies globally. This included many Indian names too. Indian companies such as Lupin, Cipla, Dr Reddy’s and others also showed keen interest. Lupin announced a mega deal worth US$ 800 m for acquiring Gavis. On the other hand, Cipla and Dr Reddy’s too made acquisitions in the US and India respectively.


     Key Points


    Supply

    Higher for traditional therapeutic segments, this is typical of a developing market. Relatively lower for lifestyle segment.

    Demand

    Very high for certain therapeutic segments. Will change as life expectancy, literacy increases.

    Barriers to entry

    Licensing, distribution network, patents, type of drug portfolios.

    Bargaining power of suppliers

    Distributors are increasingly pushing branded products in a bid to earn higher margins.

    Bargaining power of buyers

    High, a fragmented industry has ensured that there is widespread competition in almost all product segments. Currently, the domestic market is also protected by the DPCO.

    Competition

    High and fragmented owing to many small players in the industry.

    TOP

     Financial Year '15


  • FY15/CY14 was quite a challenging one, particularly on the export front. On the domestic front, the year was a mixed bag for companies

  • Post the pricing policy announced by National Pharmaceutical Pricing Authority (NPPA) in 2013-14, many MNC pharma companies got impacted. This had resulted in poor performance being reported by major MNC companies. Their performance was even below the domestic players. The trend continued for FY15 too. Only a couple of companies exhibited better growth. The margins of these MNC players remained subdued due to increasing expenses and slower topline growth.

  • In the US, generic companies witnessed mixed growth. While some of the companies benefited from low competition launches, others got impacted by delay in approvals. Though there were not many blockbuster launches during the year, there were just a handful companies that displayed robust performance. On the other hand, Indian companies having presence in emerging markets were severely battered. The currencies of major countries witnessed sharp depreciation, leading to poor realisations. Further, slowdown in some countries impacted their growth. Over and above, the companies also witnessed pressures owing to slower approval rate. This was seen in regions of Latin America.

  • Currency depreciation had both positive and negative impact on the Indian pharma companies. Depreciating rupee helped some companies garner better margins. On the other hand, those with forex loans on their books witnessed higher payments.

  • The industry continued to face bigger challenges on the regulatory front. The companies faced issues from the USFDA, as they lacked good manufacturing practices (GMP). Because of this, there were instances of import alerts being issued, drug recalls, warning letters and so on. The regulators have become more stringent now and have also been conducting surprise checks.
    TOP

     Prospects


  • The IPM size is expected to grow at 9-12% CAGR between 2013-18. The growth in Indian domestic market will be boosted by increasing consumer spending, rapid urbanization, increasing healthcare insurance, drugs and so on. On the global front, the IPM is ranked 13th in terms of value. Owing to robust growth, its ranking is expected to improve to 11th position by 2018.

  • The life style segments such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyle patterns. Going forward, better growth in domestic sales will depend on the ability of companies to align their product portfolio towards these chronic therapies as these diseases are on the rise.

  • In various global markets, the government has been taking several cost effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies. However, despite promising outlook, intense competition and consequent price erosion would continue to remain a cause for concern. Over and above this, following GMP will be an important criterion for companies in order to grow in the global markets.

  • For the US market, Indian companies are developing niche portfolios in various segments. High margin injectables, dermatology, respiratory, biosimilars, complex generics etc. have become an area of interest. Most of the Indian pharma companies have been working on these niche drugs to optimize growth and margins. Thus, post patent cliff, the companies which have developed their product basket in the niche category will be ahead in the curve. Moreover, generic penetration in the US is expected increase to 86-87% over the next couple of years from 83% currently.
    TOP
    Related Links for Pharmaceuticals Sector: Quarterly Results  NEW | Sector Quote | Over The Years

    Views on News

    Glenmark: Margins under Pressure (Quarterly Results Update - Detailed)

    Jun 22, 2016

    Glenmark has announced its 4QFY16 results. The company has reported 30.5% YoY growth in sales and 1255.8% YoY increase in net profits. Here is our analysis of the results.

    Lupin: Niche products boost business growth (Quarterly Results Update - Detailed)

    Jun 15, 2016

    Lupin has announced its 4QFY16 results. Net sales have grown by 38.6% YoY, while net profits declined by 54.8% YoY. Here is our analysis of the results.

    Cipla: Impacted by one offs (Quarterly Results Update - Detailed)

    Jun 2, 2016

    Cipla has announced its 4QFY16 results. The company has reported 7.6% YoY growth in sales and a decline of 68.9% YoY in net profits. Here is our analysis of the results.

    Thyrocare Technologies Ltd (IPO)

    Apr 26, 2016

    Thyrocare Technologies one of the leading player in diagnostic, wellness and preventive services in India, is coming out with an IPO. Should you subscribe to it?

    Healthcare Global Enterprises Ltd (IPO)

    Mar 15, 2016

    Healthcare Global Enterprises Ltd, with its focus on cancer and fertility treatments, is coming out with an IPO. Should you subscribe to it?

    More Views on News

    Most Popular

    Why Do People Still Have Deposits in Indian Overseas Bank and UCO Bank?(Vivek Kaul's Diary)

    Aug 16, 2016

    The bad loans of these banks now make up for close to one-fifth of their lending.

    The Greediest Thing an Investor Can Do(The 5 Minute Wrapup)

    Aug 19, 2016

    Successful investors see this strategy as "returns waiting to happen".

    Will RBI remain Independent?(The Honest Truth)

    Aug 16, 2016

    The choice of next RBI governor could have a crucial impact on India's economic future.

    Unicorns and Smallcap Dwarfs(Chart Of The Day)

    Aug 20, 2016

    The timeframe for tech startups becoming unicorns is shrinking.

    12 Trading (Not Investing) Principles from Warren Buffett(Daily Profit Hunter)

    Aug 17, 2016

    Apurva Sheth talks about trading principles

    More

    S&P BSE HEALTHCARE


    Aug 26, 2016 (Close)
    View Detailed Quote

    COMPARE COMPANY

    MARKET STATS