November 14, 2018

Outlook of Indian Pharma Companies 2-3 year Horizon

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Outlook of Indian Pharma Companies 2-3 year Horizon

To have any perspective on possible Outlook for Indian Pharma industries one should have a basic understanding of structure of Pharma Industry in India.

Dynamics of Indian Pharma Industry:

  • The Indian Pharmaceuticals market is the 3rd largest in terms of volume and 13th-largest in terms of value.
  • All Pharma companies will have Branded Generic drugs & Generic Generic drugs (lesser price, component most often remains the same, market placement of drugs is the differentiator).
  • Indian Pharmaceuticals is amongst the global leaders in providing quality generics to the world. Indian Pharmaceutical companies constitute a 16 billion dollar market.
  • India’s cost of production is nearly 33 per cent lower than that of the US as labour costs are 50–55 per cent cheaper than in Western countries.
  • The cost of setting up a production plant in India is 40 per cent lower than in Western countries & as a result it has highest number of USFDA plants outside the USA. India has over 546 USFDA-approved company sites/manufacturing plant, the highest number outside the US.
  • The market share of hospitals is expected to increase from 13.1% in 2009 to 26% in 2020. The purported rise of lifestyle diseases in India is expected to boost industry sales figures.

Analysing the sector as is:

All businesses thrive on having a stronger order book, which translates to ‘cash inflows from operations’ into balance sheets. Given this fact, now it is important to understand the present nature of markets in general. The US is the top destination for Indian Pharma exports, followed by the UK. America accounts for about 25 per cent of the country’s shipments. The other important destinations include South Africa, Russia, Nigeria, Brazil and Germany. As per latest data from commerce ministry – India supplies 20 per cent of global generic medicines in terms of volume, making the country the largest provider of generic medicines globally.

So considering US as one of the primary markets for growth of pharmaceutical companies in India – it makes it even important to understand political solvency of US government. Given the current factors with uncertainties crippling over Obama Care, key ‘Trump factors’ which include – trade war sanctions, Considerably lesser drug approvals from US DFA – these factors are sting on to building stronger order books for Indian Pharma Companies.

Now coming to Pharma market within India – emergence of BioSimilar drugs in both US as well as in India – are certainly eating into market share of established companies. BioSimilar drugs are those that is almost an identical copy of an original product that is manufactured by a different company. This is one the key challenges along with regulatory environments, as well as new trends in consumerism, so this calls for pharmaceutical companies to better engage with patients to justify prices, show value, and satisfy calls by regulator. These uncertainties will cripple down margins of every company & will lead to an act of consolidation.

Uncertainty of election results in India will only add to the story of challenges for Pharma companies as this factor is directly proportional to growth perspective of where Rupee stands compared to US dollar. (Weaker rupee will boost exports)

So considering these factors – i would like to maintain a ‘No Buy’  in Pharma sector at the moment. I strongly believe risk reward pays well to wait – as we approach the election season which is due in next 6 months & take a forward looking call accordingly.

 

Curious facts as to Why most Indian Pharma attracts global attention:

  • India’s cost of production is nearly 33 per cent lower than that of the US
  • Labour costs are 50–55 per cent cheaper than in Western countries. The cost of setting up a production plant in India is 40 per cent lower than in Western countries
  • Cost-efficiency continues to create opportunities for Indian companies in emerging markets & Africa
  • India has a skilled workforce as well as high managerial & technical competence in comparison to its peers in Asia
  • India has the 2nd largest number of USFDA-approved manufacturing plants outside the US
  • India has 2,633 FDA-approved drug products. India has over 546 USFDA-approved company sites, the highest number outside the US.

 

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