Pharma companies eyeing acquisitions in API and formulation space to consolidate market share: CRISIL 

Pharmaceutical companies are increasingly focusing on acquisitions in the Active Pharmaceutical Ingredients (API) and formulation space to consolidate market share and diversify portfolios, global analytics company CRISIL said in a report. 

The Indian pharmaceutical sector is expected to maintain its growth, driven by a strategy focused on increasing market share and diversifying product offerings, the report added. The sector is projected to see revenue growth of 8-10 percent this fiscal year, building on last year’s 10 percent growth, CRISIL said. This growth is supported by exports to regulated markets, a recovery in semi-regulated markets, and stable domestic demand, it said. 

Improvements in operating leverage and easing pricing pressures in the US generics market are expected to lift operating margins by 70-80 basis points, bringing them to around 22.5 percent this fiscal, following a 100-basis point increase last year. Strong cash generation and low financial leverage will help maintain stable credit profiles, even as companies pursue acquisitions in key therapeutic areas, said the report. 

“Acquisitions are becoming a key strategy for companies looking to expand their presence in targeted therapeutic areas,” said Aditya Jhaver, Director, CRISIL Ratings. 

A CRISIL study of 190 drug manufacturers, representing about half of the Rs 4.1 lakh crore (Rs 4.1 trillion) market last fiscal, shows an even split between domestic sales and exports. Domestic formulation revenue is equally divided between chronic and acute therapeutic segments, while exports are primarily made up of formulations (80 percent) and bulk drugs (20 percent). Formulation exports to regulated markets like the US and Europe are expected to grow by 12-14 percent in rupee terms this fiscal, said CRISIL. 

“Formulation exports to regulated markets will benefit from ongoing drug shortages, easing pricing pressures in the US generics market, and volume growth from new product launches,” said Aniket Dani, Director, CRISIL Market Intelligence & Analytics. Exports to semi-regulated markets are expected to grow by 8-10 percent, driven by improving foreign exchange reserves and economic recovery in African and Latin American countries, said the report. 

Domestic revenue is likely to grow by 7-9 percent, mainly due to price increases and new product launches. Price growth is expected to come largely from the non-National List of Essential Medicines (non-NLEM) portfolio, with the NLEM portfolio remaining steady due to minimal changes in the Wholesale Price Index. 

The sector’s financial outlook remains stable, with a debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortisation) ratio of 0.9 times and an interest coverage ratio of over 12 times for fiscal 2025, indicating steady growth prospects, the report said.