Pharma companies unlikely to sustain healthy operating performance reported in Q1: Ind-Ra

25 Aug 2020 Evaluate

India Ratings and Research (Ind-Ra) in its latest report has said that domestic pharma companies are unlikely to sustain the healthy operating performance reported in Q1 (April-June) of FY21 as they will lose the margins booked during the global lockdowns. It noted that the pharma companies cumulatively saw their pre-tax margins rising by 306 basis points (bps) on an annualised basis and 551 bps sequentially in the Q1 due to the strong revenue growth in the active pharmaceutical ingredient (API) business and lower operating expenses. It added that the API business revenue grew 31% year-on-year and 18% quarter-on-quarter in Q1 as demand from global and Indian formulation players remained robust, aided by higher pricing opportunities.

According to the report, the US is the single largest market for the domestic companies with 36 percent of the revenue share followed by the domestic market at 31 percent, while 16 percent of their revenue comes from APIs. It also said that the restricted movement of medical representatives and other cost savings due to the lockdown saw operating expenses declining 8 percent y-o-y and 19 percent q-o-q in the quarter, which boosted bottom-line. It also said strong numbers are in spite of the export-led domestic players seeing muted performance in their key markets of the US and other Western market wherein their q-o-q revenue declined in Q1.

The report further said that the US business was hit by channel filling in Q4 of FY20 and patients staying away from hospitals and clinics due to the pandemic resulting in q-o-q decline in revenue. Also, it said that their domestic business was hit due to a sharp decline in the acute therapy portfolio while the chronic segment continued to see moderate growth, led by a continued demand for cardiac and anti-diabetic products. The report sees a likely moderation in API business growth rates, which was high in Q1 because of exports. Domestic API players benefited from the focus on supply chain continuity for customers and better inventory management in view of supply disruptions from China and the run up in the prices. There was an element of channel stocking as well, supporting growth.

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