Outlook for pharmaceutical in 2012 stable, says Fitch

Fitch Ratings says that the 2012 outlook for the Indian pharmaceutical industry is stable. The agency expects credit profiles to remain stable given that long-term earnings and profitability prospects remain intact with moderate capex.

Fitch believes that during 2012, earnings prospects for Indian pharmaceutical companies will continue to be guided by the growing preference for generics as well as opportunities provided by patent expiries in developed markets.

Furthermore, other segments of the sector, namely contract research and manufacturing services, and the domestic market are also expected to continue to grow due to the favourable macro environment.

Fitch expects that amid the growing demand for generics, capacity utilisation for the sector would increase and operating margins would benefit from better cost rationalisation.

The agency notes that margin improvement for the sector could also accrue due to depreciation of the rupee. However, the extent of this would be governed by the amount of imports and hedging policies adopted.

Any additional licensing income received from strategic alliances could also have a positive impact on margins.