India’s Pharmaceuticals Market (IPM) is expected to grow 6-8% on a YoY basis in FY23.
As a result, growth was capped due to a high base effect and inventory hoarding in FY21 due to the disruption in supply of key raw materials caused by Covid-19.
Additionally, API (Active Pharmaceuticals Ingredient) business is expected to post high single-digit growth in FY23 due to higher demand, overall revenue growth is expected to be 9-10% year-on-year.
In a research note, India Ratings and Research (Ind-Ra) said it maintained a neutral outlook for the Indian pharmaceutical sector for FY23.
The agency said higher capital expenditure instead of the production-linked incentive program (PLI) would restrict the quantum of free cash flow generation during the year.
“Large players are sufficiently capitalized to make larger investments to adapt to the ongoing fundamental shift in market opportunities,” the note said.
“Cost reduction measures remain a priority for Indian businesses. However, intermediate disruptions such as high raw material costs and logistics expenses will put pressure on the level of free cash flow generated.”
Additionally, the agency said that with the significant improvement in free cash flow generated in the near term, M&A activity will continue to provide an inorganic boost in FY23.
“Ind-Ra does not expect industry liquidity to face a major risk, despite similar maturity levels in FY23 and FY24. Large pharma companies typically have large cash balances, which generally represent 14 to 16% of their income.
In addition, most companies have ample flexibility under covenants and diversified funding sources.
“Coverage of big pharma interests is likely to increase as scale and margins expand.”
“Ind-Ra expects big pharma to continue their healthy debt-funded investment and research and development program given greater visibility in terms of sales growth and profitability.”
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