Indian Pharma Industry to Reach

USD 57 billion by FY25, Operating

Margins to Expand by 100-150 bps
July 10, 2023 l Ratings

Synopsis
• The Indian Pharmaceutical Industry (domestic and exports) registered a CAGR of 6%-8% during FY18-FY23
contributed by 8% growth in exports and 6% growth in the domestic market during the same period.
• The Indian pharma market grew by nearly 5% on a y-o-y basis to USD 49.78 billion in FY23. The exports grew
by just 3% while the domestic market continued to grow at a healthy rate of 7% in FY23 over FY22. Within
exports, the emerging markets were largely flat while the developed market registered a growth of around 8%
in FY23 on a y-o-y basis. The exports to emerging markets were impacted due to Russia-Ukraine war and a
shortage of foreign currency in many African countries apart from the significant depreciation of their local
currencies.
• Despite sustained pricing pressures in the US generics market, formulation companies could sustain their
margins to around 22% in FY23 due to focus on complex and speciality products. The operating margin of
APIs/ bulk drugs companies declined by nearly 170 bps on a y-o-y basis and stood at around 18% in FY23.
• CareEdge Ratings expects the industry to grow at 7% to 8% in FY24-FY25 supported by 6% to 7% growth in
exports and 8% to 9% growth in the domestic market during the same period. With the stabilisation of raw
material prices, freight rates, and easing of pricing pressure in US generics market along with a focus on
complex and speciality products, CareEdge Ratings expects the operating margin of industry players to improve
by 100-150 bps over FY24-FY25 compared to FY23.
• Historically, the credit profile of Indian pharmaceuticals companies in general has remained stable due to their
strong profitability and lower reliance on debt which is likely to continue.

Industry Continues to Grow at Steady Rate

The Indian pharma industry has grown from USD 35.41 billion in FY18 to USD 49.78 billion in FY23 and is likely to
reach USD 57 billion by FY25. Globally, Indian pharma industry has a strong footprint in the generics segment. The
pharma exports and domestic market contribute equally to the overall Indian pharma Industry.

Indian Pharma Industry (USD Bn) 53.16 56.90

49.78
47.39
45.73
40.75
35.41 39.19
50%
49%
48% 49%
47%
51% 49%
51%

51% 51% 50%

53% 52%
49% 49% 51%

FY18 FY19 FY20 FY21 FY22 FY23 (E) FY24 (P) FY25 (P)
Pharma Exports Domestic Market

Source: CareEdge Ratings Estimates; Excluding Covid-19 vaccine revenues

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 Indian Pharma Industry to Reach USD 57 billion by FY25, Operating Margins
to Expand by 100-150 bps

Indian Pharma Exports Dominated by Formulation

Pharma exports largely
include formulation products
Formulation Exports (USD Billion)
which have grown at a CAGR
of 8-9% during FY18-FY23.
Regulatory headwinds and
consequent lower ANDA
7.0% 8.0% 10.94 approvals are likely to
10.13
9.47 constrain the exports to
developed market. However,
increasing focus on synthesis
6.39
segment, complex and
4.5% 5.0% speciality products apart
10.60 11.08 11.63 from easing of pricing
6.78 pressure in US generics are
likely to support the growth
in medium term. Increasing
FY18 FY23 (E) FY24 (P) FY25 (P)
access to healthcare shall
Developed Markets Emerging Markets also drive the higher growth
in emerging markets.
Source: CareEdge Ratings Estimates; CMIE

The US holds a prominent position as one of the largest export destinations for the Indian pharma industry,
accounting for approximately 30-35% of total formulation exports. In recent years, the US generics market has
experienced significant price corrections due to the consolidation of buyers and distributors. Despite these
challenges, CareEdge Ratings has observed a notable increase in US export sales volumes, with expectations of
sustained growth driven by upcoming patent cliff opportunities.

In FY23, formulation exports to the US recorded a growth of 5.9%, primarily supported by sales volume growth of
around 16%. However, this growth was partially offset by a price erosion of around 10-11% (Source: CMIE).
Furthermore, it is worth noting that the pricing erosion in the US generic market has eased to low single digit, a
significant improvement compared to the high double-digit erosion witnessed in the past two years.

Looking ahead, there are substantial opportunities on the horizon, as approximately USD 188 billion worth of drugs
worldwide are set to go off-patent during the period from CY2023 to CY2026. This presents a favourable landscape
for the Indian pharma industry to capitalize on these patent expirations and expand its market share.

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 Indian Pharma Industry to Reach USD 57 billion by FY25, Operating Margins
to Expand by 100-150 bps

During FY23, the Indian

Bulk Drug/ API exports (USD Billion) Pharma exports stood at USD
25.39 billion which includes
APIs/ bulk drug exports of
5.95
5.61 USD 5.32 billion. After
5.32 witnessing sharp rise in APIs/
bulk drug exports during
4.12 FY21 due to COVID-19 led
supply chain disruption in
5.5% 6.0% China, the exports of APIs/
bulk drugs have remained
subdued during FY22 and
FY23.

The export of Bulk drug/

APIs is likely to grow at
around 5-6% over FY24-
FY18 FY23 (E) FY24 (P) FY25 (P) FY25; in-line with its
historical average.
Source: CMIE; CareEdge Ratings Estimates

Operating Margin to Reach to Pre-Covid Levels

During the pre and post-Covid periods, the Indian pharmaceutical industry experienced significant changes in its
operating profitability (PBILDT) margin. In FY21, due to the COVID-19 pandemic restrictions, there was a noticeable
reduction in marketing, travelling, and conveyance expenses. Coupled with increased sales opportunities related to
Covid-19, this resulted in a substantial increase in operating margins for the industry.

However, the subsequent years, FY22 and FY23, presented new challenges for the pharma sector. Elevated input
prices, rising freight costs, extended delivery timelines, and competitive pressures in the US generics market led to
a moderation in operating margins.

As we look ahead, there are positive signs for the industry. Raw material prices are stabilizing, freight rates are
normalising, and pricing pressure in the US generics market is easing. These factors are expected to contribute to
an expansion of operating margins by approximately 100 to 150 basis points over FY24-FY25 compared to FY23.
Furthermore, the industry's continued focus on launching specialty and niche products in the US market is
anticipated to provide further support to the profitability.

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 Indian Pharma Industry to Reach USD 57 billion by FY25, Operating Margins
to Expand by 100-150 bps

PBILDT Margin (%)

24.6
23.6 23.5
23.0
22.4 22.5
21.9 21.7 23.8

21.6

19.9 20.1 20.0

19.4 19.5
18.4

FY18 FY19 FY20 FY21 FY22 FY23 FY24 (P) FY25 (P)

Bulk Drugs/ APIs Formulation

Source: Ace Equity; CareEdge Ratings Estimates. The sample set of listed companies which includes 53 APIs/ bulk drugs
companies and 111 formulation companies. These entities together represent nearly 67% of the Indian pharma industry.

CareEdge Ratings’ View

“The Indian pharma sector is expected to grow at a steady pace in the medium term due to structural factors such
as ageing of the population, rising lifestyle or chronic diseases, healthcare awareness and insurance penetration
apart from increasing government spending under various schemes. Further, changing world demography along
with complex and specialty generic products are expected to drive the export growth of Indian pharma companies.
The export growth would also be supported by patent expiry in regulated markets. Going forward, CareEdge Ratings
expect higher export growth rates for emerging markets compared to growth rates of developed markets. The
Indian pharma industry is expected to see a growth of around 7% to 8% over FY24-FY25 while the operating
profitability of formulation companies to improve to around 23-23.5% and that of APIs/ bulk drug companies to
improve to around 19-20% during the same period”, said Krunal Modi, Associate Director at CareEdge Ratings.

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Indian Pharma Industry to Reach USD 57 billion by FY25, Operating Margins
to Expand by 100-150 bps

Contact
Padmanabh Bhagavath Senior Director ps.bhagavath@careedge.in +91 - 22 - 6754 3407
Hardik Shah Director hardik.shah@careedge.in +91 - 22 - 6754 3591
Krunal Modi Associate Director krunal.modi@careedge.in +91 - 79 - 4026 5614
Mradul Mishra Media Relations mradul.mishra@careedge.in +91 - 22 - 6754 3596

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