After a robust performance in the first quarter of the ongoing financial year (Q1 FY21), profits in the pharmaceutical sector may take a hit in the days to come with increased competition and a likely moderation in prices.
Segments such as the Active Pharmaceutical Ingredients (APIs) — the key ingredient in medicines — saw its revenue grow 31 per cent year-on-year and 18 per cent sequentially during the quarter under review.
This was largely of higher pricing opportunities, lower operating expenses and export business as drug companies, domestic and global, started scouting for non-Chinese sources for raw materials, following COVID-19.
Most analysts, however, expect this growth in the API business to taper off as companies normalise their buying patterns. “The restricted movement of medical representatives and other cost savings in terms of manpower rationalisation, due to the lockdown led to the operating expenses declining 8 per cent y-o-y and 19 per cent q-o-q in the quarter, aiding profitability. However, the sudden demand that had led to prices of some APIs’ increasing significantly is likely to normalise as the unlock phase gains momentum globally and in India and companies may not be able to sustain their healthy operating performance,” said Krishnanath Munde, senior pharma analyst and associate director at India Ratings & Reseach.
After a brief lull in March and April, exports in May were up by a stronger 17.3 per cent backed by easing lockdown restrictions and demand for antivirals and antibiotics for treatment of COVID-19. The industry, however, will continue to see steady demand from the domestic as well as international markets.
During the lockdown period, demand from segments like women healthcare, dermatology and orthopaedic were impacted as treatment for such ailments were kept on hold, while demand for antibiotics, cold and cough gained traction in the domestic market.
“With relief in various restrictions in place, the industry is expected to see pent up demand for treatments that were postponed which will support the demand for drugs,” brokerage firm Care Ratings said in note.
Drug ban hits exports
Imposition of export ban on 26 drugs by the government led to a substantial 22.8 per cent fall in pharma
outbound shipments in the March, according to official data.
Had it not been for this, the exports would have grown by a higher 11.7 per cent during FY20, says analysts at Care Ratings. – The New Indian Express