Investment Opportunities in the Growing Indian Pharmaceutical Industry

The Indian pharmaceutical industry is witnessing substantial growth and presents attractive investment opportunities in India. According to a recent report by CareEdge Ratings, the industry is projected to grow at a compound annual growth rate (CAGR) of 6-8% during the period of FY18 to FY23. It is expected to continue its upward trajectory, with a growth rate of 7-8% from FY24 to FY25, reaching an estimated market size of $57 billion by FY25. This blog explores the investment potential and key factors driving the growth of the Indian pharmaceutical sector.

The Indian pharmaceutical industry has displayed remarkable expansion, with its market size increasing from $35.41 billion in FY18 to $49.78 billion in FY23. This growth has been propelled by both the domestic market and pharmaceutical exports. The industry's strong footprint in the generics segment has positioned India as a global player. Moreover, the rising prevalence of chronic diseases, an aging population, increased healthcare awareness, insurance penetration, and government initiatives have bolstered the sector's growth potential.

Indian pharmaceutical companies have established a significant presence in the global market, particularly in the generics segment. The report highlights the export growth potential of Indian pharma companies, which will be driven by the expiration of patents in regulated markets. Although exports to emerging markets were impacted by geopolitical factors and currency depreciation, focusing on complex and specialty generic products is expected to propel export growth in the medium term. It is anticipated that emerging markets will exhibit higher export growth rates compared to developed markets.

The United States represents a prominent destination for Indian pharmaceutical exports, accounting for approximately 30-35% of total formulation exports. Despite challenges such as price corrections due to market consolidation, there has been a notable increase in US export sales volumes. The upcoming expiration of patents for drugs worth approximately $188 billion from Calendar Year 2023 to Calendar Year 2026 presents a favourable landscape for the Indian pharma industry. This scenario enables Indian companies to capitalise on patent expirations and expand their market share.

The Indian pharmaceutical market experienced a growth rate of nearly 5% YoY, reaching $49.78 billion in FY23. While exports grew by 3%, the domestic market sustained a healthy growth rate of 7% during the same period. The medium-term growth in the domestic market is projected to be around 8-9%, driven by rising healthcare awareness, increasing government spending on healthcare schemes, and the prevalence of chronic diseases.

The credit profile of Indian pharmaceutical companies has historically remained stable due to their strong profitability and lower reliance on debt. Although the operating margins of the industry fluctuated due to the COVID-19 pandemic and subsequent challenges, the outlook for the future is optimistic. Factors such as stabilising raw material prices, normalising freight rates, easing pricing pressures in the US generics market, and the focus on launching specialty and niche products are expected to contribute to an expansion of operating margins by approximately 100 to 150 basis points over FY24-FY25.

The pharmaceutical industry offers compelling investment opportunities in India, driven by its consistent growth trajectory, strong export potential, and expanding domestic market. With a projected CAGR of 6-8% during FY18-FY23 and an estimated growth rate of 7-8% in FY24-FY25, the industry is poised for further expansion. The upcoming patent expirations worldwide and the Indian pharma sector's emphasis on complex and specialty products present additional avenues for market share growth. Investors looking to capitalise on the robust growth of the Indian pharmaceutical industry should consider exploring the diverse investment opportunities in India available in this sector.