Indian pharma sector’s rollercoaster year: Growth, challenges, and a positive outlook ahead

Capitalising on global trends

Sun Pharmaceutical Industries saw its market capitalisation rise by 45% to Rs 3.5 lakh crore, moving up four places in the BT500 ranking, with shareholders seeming to give a thumbs up to its strategies. The company showed steady growth in FY24, with gross sales rising by 10% to Rs 47,759 crore. Its formulation sales grew by 9.5% in the domestic market to Rs 14,889 crore. The keys to its growth: new products and strategic marketing.

Sun’s formulation sales in the US increased by 13% to Rs 15,349 crore. Global speciality sales grew by 19% to `8,738 crore, accounting for 18% of total FY24 sales. In emerging markets, it reported formulation sales of `8,620 crore, up 9%, and in the Rest of the World (RoW), sales increased by 11% to Rs 6,715 crore.

Sun invested Rs 3,178 crore in research and development (R&D), up from `2,368 crore in FY23. Ebitda or earnings before interest, taxes, depreciation, and amortisation, added up to Rs 13,023 crore, with an Ebitda margin of 27%. The adjusted net profit, excluding exceptional items, rose 16.5% to `10,071 crore, against Rs 8,645 crore the previous year.

Sun Pharma spent Rs 793 crore or 6% of total sales on R&D in Q2FY25.

“We remain focussed on maintaining a balanced approach, investing in R&D, and expanding our speciality product portfolio,” said Dilip Shanghvi, Chairman and Managing Director of Sun Pharma, during a recent investor call.

In Q2FY25, Sun Pharma’s net sales were up 11% to Rs 13,264 crore, while net profit was up 28% to Rs 3,040 crore. Sun rode demand across key markets, but the US is the lynchpin, with sales increasing by 20%. “The US remains vital to our expansion, and we are excited about new product launches,” said Abhay Gandhi, CEO of Sun Pharma’s North America operations.

In India, Sun Pharma reported an 11% growth in Q2, aided by product launches.

Zydus Lifesciences reported an 80% increase in market capitalisation to Rs 92,068 crore, powering it up by 13 places in the BT500 ranking. Zydus’s show reflects the success of diversifying its product portfolio and expanding its footprint across key international markets.

Among other big names, Cipla slipped by eight places despite its performance in its core therapeutics business. However, its strategic investments in chronic therapy markets in the US and Africa have helped it maintain revenue growth. In Q2FY25, Cipla increased its revenue by 9% to `7,051 crore, while the Ebitda margin was 27%.

Umang Vohra, Cipla’s Managing Director and Global CEO, says the growth is across key therapeutic areas. “Our growth in India is driven by performances in the chronic therapy sector,” Vohra said, highlighting Cipla’s chronic market share at 62% share in the respiratory and cardiac treatment markets. Its consumer health business grew 20%. However, Cipla faces some challenges, including supply chain disruptions affecting its lanreotide franchise and issues raised during a US FDA re-inspection of its Goa facility. Lanreotide is used primarily to treat certain types of tumours and acromegaly, a growth hormonal disorder. “We are addressing these issues and expect resolutions by Q4FY25,” Vohra has assured investors.

Cipla CFO Ashish Adukia said the company’s One India business would continue to grow ahead of the market in branded prescription and accelerate the growth in trade generics. Cipla is targeting a full-year margin between 24.5% and 25.5%. It will continue to expand in the US.

Cipla reported a 14% increase in revenue in FY24 to over Rs 25,000 crore, driven by solid performances across key markets like India, North America, and South Africa. Profitability improved, with Ebitda rising 26% YoY to Rs 6,233 crore, and profit after tax (PAT) increasing by 47% to Rs 4,106 crore. As of September 2024, Cipla has a net cash reserve of Rs 7,950 crore, providing significant financial flexibility.

Emerging strong

Firms such as Sun Pharma, Zydus, Divi’s Laboratories, and Cipla are positioned to capitalise on global trends—diversification of pharma supply chains and rising demand for manufacturing solutions.

Divi’s Laboratories, which fell 14 places, will bank on the expanding GLP-1 class of drugs used to treat type 2 diabetes and obesity. Divi makes generic APIs, or active pharmaceutical ingredients.

Vivek Agrawal, an analyst at Citi Research, says Divi’s has aimed for GLP-1 APIs, with collaborations, including with Eli Lilly for tirzepatide, used for managing type-2 diabetes and in weight loss.

Divi’s is expanding contract manufacturing services, introducing products such as ribociclib and upadacitinib. Ribociclib is used to treat breast cancer, while upadacitinib is for chronic inflammatory conditions. “Divi is well-placed to capitalise on the growing demand for GLP-1 products, with the potential to generate `6,640 crore in revenue by 2030,” Agrawal says.

Abbott India fell 28 rungs though its market capitalisation grew 21.7%. “Abbott’s struggles highlight the shifting dynamics in the sector,” an industry analyst said. “Despite the growth, external factors are affecting its positioning.”

Fortis Healthcare, which runs a chain of hospitals, reported a 51.6% rise in market cap, and Granules India, which makes off-patent drugs, was up by 47.8%. Their gains reflect rising demand for healthcare services and strong strategies.

Global Health, a hospital major better known as Medanta, saw its market cap more than double (103.8%) while that of Glenmark was up 98.3%. Medanta’s growth came from strategic expansions, and Glenmark’s from innovative offerings. Biocon’s market cap increased 17.2%, but it fell 35 places in the BT500 rankings as pricing pressures impacted competitiveness.

Kiran Mazumdar-Shaw, Chairperson of Biocon, acknowledged the challenges but said, “We have expanded our business globally. With key new product launches, we are constantly striving towards enhancing shareholder value. Our biosimilars business alone crossed a milestone of $1 billion in FY24”.

Despite challenges, Biocon’s Q2FY25 show is promising, with an 8% YoY growth in operating revenues to Rs 3,590 crore. Its biosimilars business, particularly in the US oncology and insulins markets, continues to drive growth. “We are well-positioned for a strong H2FY25,” Mazumdar-Shaw said.

Sectoral outlook

Aurobindo Pharma saw its market cap jump 94.3%. However, challenges remain, particularly in the US. Regulatory hurdles worry Indian firms, but analysts are optimistic about the sector’s prospects.

The government expects India’s pharma market to reach Rs 7.5 lakh crore by 2025, growing at 10-12%, supported by a strong domestic manufacturing base and rising exports. India ranks third globally in drug production by volume and exports to over 200 countries. India’s pharma exports rose 8.36% from Rs 17,750 crore in July 2023 to Rs 18,670 crore in July 2024. In FY24, the exports reached Rs 2.3 lakh crore, up from Rs 1.1 lakh crore in FY14.

The government’s production-linked incentive (PLI) scheme has spurred domestic production and innovation. The scheme, introduced in September 2020, is expected to continue driving growth in the sector.

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