Amid drug pricing woes, pharma sector pins hope on exports to drive growth

The pharma sector continues to remain upbeat unlike most other industries this quarter, riding on export opportunities.  

Analysts expect the Indian sales of most pharma companies to be adversely affected in the current quarter, as local distributors are not likely to pick up stocks because of the price control policy which will take effect from the next quarter.

Under the Drug Prices Control Order, 2013, 348 medicines in the National List of Essential Medicines have been brought under price control, replacing an earlier order that regulated prices of only 74 bulk drugs.

Pharmacists and druggists have been fighting for amendments to the policy to ensures retail chemists keep their margins, with several of them organising strikes in Maharashtra over the issue, but many feel the policy is likely to dent profits.

Estimates on industry growth vary. While some analysts expect the domestic pharma market to grow by 8 to 9 per cent, others see a 10 to 12 per cent growth.

Both estimates are lower than the 13 to 15 per cent growth the sector has been registering so far. Larger companies have seen a higher growth rate of as much as 18 to 20 per cent.

Growth margins are likely to take a hit as sales of companies like GSK Pharma, Cipla and Ranbaxy, with large India base, are expected to be under pressure.

Though companies are expected to hold on to double-digit growth, the sector's overall growth is likely to gain momentum on the back of exports.

Analysts see export-oriented companies posting 20 to 30 per cent growth this quarter.

Many Indian pharma companies like Lupin, Ranbaxy and Dr Reddy's have a significant share of their revenues coming from exports.

In Cipla's case, revenues are almost equally divided between the exports and the domestic market. But its strategy has been to increase the share of exports in its overall revenues.

Among the factors that could drive exports growth for the companies is the launch of new products, especially in areas where there is limited competition. The pharma companies should continue to focus on emerging markets also, if they hope to turn things around for the sector this quarter.