Continued pricing pressures in US, European Markets to affect profit margins of Indian pharma firms: Ratings agency ICRA

The revenues for a sample set of 16 Indian pharmaceutical firms, including the likes of Wockhardt, Torrent Pharmaceuticals, Pfizer, Abbott India, Cipla, Lupin, Sun Pharmaceuticals and Dr Reddy's, are expected to grow by 4-6 percent in FY2023, marginally lower than the growth of 7.7 percent in FY2022, ICRA said in a statement.

However, for FY2024, ICRA said it expects the sample set revenues to grow by 6-8 percent primarily driven by the domestic and emerging markets.

The ratings agency said while revenues for these companies in FY23 will be supported by 5-7 percent year-on-year growth in the domestic market and 4-5 percent in the US business, revenues from the European market are expected to contract marginally, given the ongoing macroeconomic challenges and the large base of the previous fiscal which was supported by vaccine sales.

Yet, ICRA said, "Continued pricing pressures in the US and European markets and cost inflation (is) likely to result in 50-100 bps contraction in operating profit margin for ICRA's sample set in FY2023".

Revenues of ICRA's sample set from Europe continue to witness headwinds such as muted demand, the depreciation of the euro against the rupee, and pricing pressures due to increasing competition, ICRA Assistant Vice President & Sector Head Mythri Macherla said.

Further, she said, "Some companies are thus exiting non-profitable markets and/or products to protect their margins as the ongoing inflationary pressures are also impacting the cost of imports from Europe."

The market conditions in Europe are expected to remain challenging, given the ongoing macroeconomic issues, even as the same is expected to be mitigated for some companies to a certain extent by expansion in product offerings and market share gains in existing products, Macherla said.

As for the US market, the ratings agency said in line with the trends in the recent past, mid-to-high single digit pricing pressure is expected to continue over the near term for generics, with some normalisation expected only after a few quarters.

On the recent pick-up in inspections by the US Food & Drug Administration (USFDA), the rating agency's Assistant Vice President & Sector Head Deepak Jotwani said, "With the USFDA re-commencing physical inspections of manufacturing facilities and some companies receiving form 483s and warning letters, regulatory risks remain a key monitorable."

Any adverse outcome in the form of warning letters or import alerts for key facilities could impact the companies' business prospects, he added.

ICRA said most major Indian pharmaceutical companies continue to focus on emerging markets to fuel their growth, given that they continue to face pricing pressure in the US and the European markets.

"The growth in emerging markets also continues to be driven by new product launches, strong demand, and depreciation of the rupee against certain currencies," it added.