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

India Ratings & Research (Ind-Ra) in its latest report has stated that the domestic pharma companies are unlikely to sustain the healthy operating performance reported in Q1 (April-June) of FY21 as they will drop the margins booked amid global lockdowns.

It pointed out that pharma companies cumulatively witnessed their pre-tax margins rise by 306 bps on an annualised basis and 551 bps sequentially in Q1 due to the strong revenue growth in the active pharmaceutical ingredient (API) business and lower operating expenses. It also added that the API business revenue grew by 31 per cent YoY and 18 per cent QoQ in Q1 as demand from global and Indian formulation players remained robust, aided by higher pricing opportunities.

According to the report, the United States is the single largest market for the domestic companies with 36 per cent of the revenue share, followed by the domestic market at 31 per cent, while 16 per cent 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 by 8 per cent YoY and 19 per cent QoQ in the quarter, which boosted bottom-line. It also said that despite strong numbers of the export-led domestic players, the muted performance was seen in key markets of the US and other Western countries, wherein their QoQ revenue declined in Q1.

The report further said that the US business was hit by channel filling in Q4FY20 and patients staying away from hospitals and clinics due to the pandemic resulted in QoQ revenue decline. 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 the continuous request for cardiac and anti-diabetic products. The report sees a slight moderation in API business growth rates, which was great in Q1, supported by exports. Domestic API players have benefitted from a steady supply chain and superior inventory management. There was an element of channel stocking as well that supported the growth.