Indian pharma sector: sound fundamentals despite increasing challenges

Despite increasing challenges, sound fundamentals and healthy growth prospects will result in stable credit risk profiles for Indian pharma companies in the international markets.

In a new report, Indian Pharma Sector: sound fundamentals despite increasing challenges, CRISIL Ratings said, "The growing global generics markets, increasing contract-manufacturing opportunities as a result of India's low-cost manufacturing advantage, and a robust domestic market are the main drivers of the strong fundamentals of the Indian pharma sector. CRISIL believes that the Indian pharma companies will maintain the growth momentum in revenues from international markets over the medium term."

International markets account for more than half of the total revenues of Indian pharma players, and revenues from these markets are expected to grow faster than revenues from the domestic market.

However, international markets pose increasing challenges because of evolving healthcare regulations, intensifying competition, volatile exchange rates, and lengthening working capital cycles.

While players in regulated generics markets are facing severe pricing pressures as a result of government-led cost-containment measures, intensifying competition, and a more stringent regulatory environment, players operating in semi-regulated markets have been exposed to risks related to sharp volatility in exchange rates and stretched working capital cycles.

Says Pawan Agrawal, director, CRISIL Ratings, ''In order to address the challenges associated with operating in overseas markets, Indian pharma companies are taking proactive steps to adopt lower-risk models for growth. Furthermore, the steady nature of the domestic market and the players' healthy financial risk profiles also mitigate these challenges.''