ICRA Projects 7-8 per cent Revenue Growth For Indian API Sector In FY2025 Amidst Improving Margins

ICRA has released a positive outlook for the Indian active pharmaceutical ingredients (API) industry, forecasting a 7-8 per cent revenue growth for its sample set of companies in FY2025. This growth is expected to follow an estimated 3-5 per cent increase in FY2024, driven by a combination of factors including a ramp-up in pharmaceutical formulations, rising demand for contract manufacturing, and a growing geriatric population.

In a press statement on Monday, the information and credit rating agency said that its research indicates that the operating profit margin (OPM) for the sample set is anticipated to improve to 12-14 per cent in FY2025, up from 11-13 per cent in the previous fiscal year. This improvement is attributed to lower input costs and the expected revenue growth. Despite recent challenges such as volatile raw material costs, pandemic-related disruptions, and inflationary pressures, the API sector is showing signs of recovery.

Deepak Jotwani, Vice President & Sector Head of Corporate Ratings at ICRA, commented, “With many headwinds abating, we expect the Indian API sector to experience sustained growth. The decrease in input costs and the increase in revenue will likely support the earnings improvement. However, we will continue to monitor the impact of subdued demand in key export markets and ongoing supply chain issues.”

India's dependence on Chinese imports for APIs, particularly essential medicines, remains high, with approximately 70 per cent ICRA has released a positive outlook for the Indian active pharmaceutical ingredients (API) industry, forecasting a 7-8 per cent revenue growth for its sample set of companies in FY2025. This growth is expected to follow an estimated 3-5 per cent increase in FY2024, driven by a combination of factors including a ramp-up in pharmaceutical formulations, rising demand for contract manufacturing, and a growing geriatric population.

Deepak Jotwani, Vice President & Sector Head of Corporate Ratings at ICRA, commented, “With many headwinds abating, we expect the Indian API sector to experience sustained growth. The decrease in input costs and the increase in revenue will likely support the earnings improvement. However, we will continue to monitor the impact of subdued demand in key export markets and ongoing supply chain issues.”

The capital expenditure for the Indian API sector is projected to moderate to Rs. 5.6 billion in FY2025 from Rs. 7.6 billion in FY2024. Credit metrics for the sample set of companies are expected to remain stable, with Total Debt/OPBDITA anticipated to be around 1.2 times in FY2025, supported by the anticipated improvement in margins and reduced capital expenditure of API imports coming from China. However, the Indian government's Production Linked Incentive (PLI) scheme aims to reduce this dependence by encouraging domestic production of key molecules like Penicillin G and 7-ACA. As of now, about 62 per cent of the envisioned investment under the PLI scheme has been committed, with significant projects nearing completion.