Mumbai: Indian pharmaceutical exporters are under pressure from weakening regulated markets, as exports to North America are likely to be modest, while Asia Pacific markets will have limited growth headroom owing to price controls, a report said.
Rising competitive intensity in the US markets is likely to create a challenging operating landscape for large exporters leading to the contraction in overall exports of pharmaceutical formulations to the regulated markets in the near term and weak-to-moderate pace growth over the medium-to-long term says India Rating and Research (Ind-Ra).
The rating agency believes contribution from other regulated markets is unlikely to grow significantly in the near to medium term, given limited significance to Indian exporters.
Exports to North America are likely to be modest, while exports to Australia and New Zealand will have limited growth headroom owing to price controls. Exports to Japan are likely to be in a recovery mode driven by a large geriatric care opportunity, but participation is likely to be limited owing to stringent regulatory standards, the report said.
Exports to regulated markets maintained a volatile growth since FY15 after recording a notable CAGR of 26.3 percent over FY11-14. The volatility is attributed to the largest regulated market, the US which has a share of 71.6 percent of regulated market exports, witnessed a weak growth in FY15, although recovered in FY16 and observed a sharp moderation in FY17.
Weakening of currencies in Europe since FY15 and the UK since FY17 on account of political issues also kept Indian exports under pressure.
In FY17, Indian exports of pharmaceutical formulations to the US peaked to a seven-year high of 39.4 percent of the overall exports. The agency expects base businesses for large players to contract 5 per cent-10 per cent per annum, amid pricing pressures from consolidating buyer groups and waning exclusivities leading to pressures on operating margins.
While favourable demographics reinforce market fundamentals, restrained budgets are likely to impact market growth for patented and generic drugs due to pricing pressures. Despite the euro making a modest recovery in Q1FY18, any currency shock due to political or monetary policy stance is likely to hurt exports.
Nearly 16.6 percent decline in pound post Brexit, slumped exports to the UK during FY17. The weakness in the pound is likely to sustain over the next one to two years, thus keeping Indian exports under pressure. As a result, we expect negative-to-lowly positive growth in exports in the near to medium term, Ind-Ra said.