Page 144 - CW E-Magazine (27-8-2024)

Pharmaceuticals

BUSINESS OUTLOOK
Indian API companies to grow by 7-8% in FY2025: ICRA

In its recently released research note, ings, ICRA said: “Given the subsequent Government for the APIs industry. The
rating agency ICRA has highlighted remission in many of these headwinds, scheme particularly focuses on select
the encouraging growth prospects of ICRA expects revenues of its sample molecules such as Penicillin G and
the Indian active pharmaceutical ingre- set of companies1 to grow by 7-8% in 7-ACA, which require sizeable invest-
dients (API) industry. ICRA expects the FY25, post an estimated increase of ments and involve high energy consump-
revenues of its sample set of companies 3-5% in FY24. Given the lower input tion during the manufacturing process.
to expand at a CAGR of 7-8% between costs, along with growth in revenues,
CY2023 and CY2029 from an estimated ICRA expects the earnings improvement Commenting on the updates on the
size of $13-14 bn in CY2023. recorded in FY24 to sustain in FY25 and PLI scheme, Mr. Jotwani said, “As of
the OPM to enhance to 12-14% from now, ~62% of the originally envisaged
This will be driven by a steady ramp- 11-13% in the previous fi scal. However, investment of ~Rs. 6,500-crore has been
up in the pharmaceutical formulations the impact of subdued demand from made in 32 commissioned projects out
industry, which in turn, will be aided by some key export markets such as Europe of a total of 48 envisaged projects. One
an increasing geriatric population, higher and tensions in the Red Sea impacting of the key products approved under the
prevalence of chronic diseases, and rising supply chain and freight costs will con- scheme is Penicillin-G, for which India
demand for contract manufacturing with tinue to be monitored.” remains highly dependent on China.
global customers looking to diversify A leading Indian API manufacturer is
their supply chain along with greater focus Dependence on imports from China likely to commission its Penicillin-G
on domestic sourcing. India imported APIs and bulk drugs manufacturing facility under the PLI
worth ~Rs. 377-bn in FY24, accounting scheme in FY25, helping reduce India’s
Operating profi t margin to improve for ~35% of its total API requirement, dependence on China for this bulk drug.
mildly in FY25 of which China accounted for ~70%. Domestic manufacturing will also help
ICRA forecasts the operating profi t Moreover, dependence on Chinese formulations manufacturers reduce their
margin (OPM) of its sample set of imports of APIs for certain essential inventory carrying cost through effi cient
companies to improve mildly in FY25. medicines is as high as 80-100%. Almost supply chain management. However,
the entire requirement of certain fermen- the overall lowering of dependence on
Indian API industry players faced tation-based APIs like ciprofl oxacin and China for APIs will ultimately depend
considerable volatility in earnings over norfl oxacin is sourced from China. The on the ramp-up in production of various
FY21-FY23 on account of multiple cost advantages with the Chinese API approved products and price competi-
headwinds such as rising raw material industry and the volatility in the prices tiveness of the Indian manufacturers.”
costs due to elevated crude oil prices and of APIs have made domestic produc-
pandemic-induced lockdowns in China, tion of certain APIs unviable for Indian Capex moderation
resulting in a shortage of key starting manufacturers, resulting in continued With the completion of capacity
materials (KSMs) and APIs globally, dependence on China. Even where APIs expansion by most companies in ICRA’s
infl ationary pressures and increased energy are manufactured locally, KSMs are sample set, capex is expected to mode-
costs in Europe, as well as heightened primarily sourced from China. The rate to Rs. 5.6-bn in FY25 from an
volatility in foreign exchange rates. None- Chinese API industry, which accounts estimated Rs. 7.6-bn in FY24. Credit
theless, raw material prices have softened for ~40% of the global requirement, is metrics for ICRA’s sample set of com-
post FY23. The container availability supported by higher economies of scale, panies are thus expected to remain com-
issues during the lockdowns were further subsidies, and fi scal incentives offered fortable, with Total Debt/OPBDITA at
accentuated by the Russia-Ukraine war, by the Chinese Government, along with 1.2 times and interest coverage of 10.0
which led to a considerable increase in lower power, fuel, and borrowing costs. times in FY25, supported by a marginal
global freight rates. improvement in OPM and modest capex
Favourable traction for PLI scheme plans. This is after the weakening of
Commenting on the industry perfor- India has witnessed favourable trac- debt coverage metrics in FY23 due to
mance, Mr. Deepak Jotwani, Vice Presi- tion for the Production Linked Incentive pressure on earnings and range-bound
dent & Sector Head – Corporate Rat- (PLI) scheme launched by the Central movement noted in FY24.

144 Chemical Weekly August 27, 2024

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