Ratings agency ICRA on Monday projected that the revenue of its sample set of Indian active pharmaceutical ingredients (API) producing firms is set to grow at a compound annual growth rate (CAGR) of 7 to 8 per cent by 2029.
The agency expects the revenues to rise from an estimated size of $13 to 14 billion in 2023, driven by rising demand and softening raw material prices. ICRA’s sample set of API firms includes ten companies.
The report stated that growth in revenue would be driven by a steady ramp-up in the pharmaceutical formulations industry, aided by an increasing geriatric population and higher prevalence of chronic diseases.
“Another factor is the rising demand for contract manufacturing, with global customers looking to diversify their supply chains along with greater focus on domestic sourcing,” the report added.
The industry is also expected to see a mild improvement in operating profit margins (OPM) to 12 to 14 per cent in financial year 2025 (FY25), from the estimated 11 to 13 per cent in FY24.
The expectations of improvement come after the domestic API industry players faced considerable volatility in earnings over FY21 to FY23, due to multiple headwinds such as rising raw material costs.
“The production costs went up due to elevated crude oil prices and pandemic-induced lockdowns in China, resulting in a shortage of key starting materials (KSMs) and APIs globally, among other factors,” the agency stated.
Speaking on the report, Deepak Jotwani, Vice President, ICRA and Sector Head – Corporate Ratings, said that given the subsequent remission in many of these headwinds, ICRA expects the revenues of its sample set of companies to grow by 7 to 8 per cent in FY25, post an estimated increase of 3 to 5 per cent in FY24.
“Given the lower input costs, along with growth in revenues, ICRA expects the earnings improvement recorded in FY24 to sustain in FY25. However, the impact of subdued demand from some key export markets such as Europe and tensions in the Red Sea impacting supply chains and freight costs will continue to be monitored,” he added.
ICRA noted that India is witnessing favourable traction in the production-linked incentive (PLI) scheme launched by the central government for the bulk drugs industry, particularly focusing on select molecules such as Penicillin G and 7-ACA, which require sizeable investments and involve high energy consumption during the manufacturing process.
Commenting on the updates on the PLI scheme, Jotwani said that around 62 per cent of the originally envisaged investment of Rs 6,500 crore has been made in 32 commissioned projects out of a total of 48 envisaged projects.
“Domestic manufacturing will also help formulation manufacturers reduce their inventory carrying costs through efficient supply chain management,” he added.
With the completion of capacity expansion by most companies in ICRA’s sample set, the capital expenditure is projected to decrease to Rs 5.6 billion in FY25, from an estimated Rs 7.6 billion in FY24.
First Published: Aug 12 2024 | 9:01 PM IST
