India Slowdown To Increase Profitability Challenges For Pharma Companies In Q1

Data from pharmaceutical market research company AIOCD Pharmasofttech AWACS Pvt. Ltd shows that growth in Indian pharmaceutical market dropped to a seven quarter low between April and June this year.

“1Q FY20 market growth stood at 7.9%, the slowest in the past seven quarters and one of the lowest in past five year,” Jefferies India Pvt. Ltd said in a note, citing the AIOCD data. The deepening slowdown in the Indian drug market will intensify profitability challenges for pharmaceutical companies.

The slowdown intensified from May, when growth dropped to 7% from an average of 10% in the preceding five months. In June, growth slipped further to 6.6%. The majority of the drugs saw moderation and are now growing in single digits.

A delay in the onset of the monsoon and low incidence of infections is set to have weighed on the offtake of acute therapy products. Besides, low inventory stocking post the implementation of goods and services tax (GST) was another reason for the slowdown in pharma sales. While there may be fair reasons for the fall, the drop in growth rates is, nevertheless, disconcerting.

A sanguine view is that product off-take figures will normalize as the industry adjusts to GST and normalises inventory levels. The impact of the delayed monsoon is also expected to be transient. But as things stand, a prolonged slowdown can upset the drug companies’ calculations.

Though less profitable than the US, the steady growth in the domestic market has been a source of strength for Indian drug companies. The steady growth in local market has provided earnings stability and cushioned Indian companies from the bruising pricing pressure in the US.

“Q1 FY20 is likely to be a weak for the US business, with waning sales from exclusivities, competition in key products and discontinuation of products e.g. Losartan. On the other hand, weakness in domestic business have persisted in Q1FY20 as well, even as April’19 was a strong month. We thus expect most companies to report between 5-10% growth in India. Weak India/US should reflect in margins and we expect overall revenue/EBITDA/PAT sequential growth of 3%/9%/29% respectively for companies under coverage,” Emkay Global Financial Services Ltd said in a note. – Live Mint

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