Resilient demand points to another good year for Indian pharma

The Indian pharma space is teeming with positivity with brokerage companies anticipating a healthy quarter scorecard from the sector. As investors turn to pharma, India's role as an emerging bulk drug supplier has caught the fancy of many.

2020 was the first time in five years that the Pharma index outperformed the Nifty. The growth story of the Indian pharma space is expected to continue in 2021.

The Nifty Pharma index gained more than 60% in 2020 and more than 108% since March 2020 lows. It ended in the green after five years of consolidation.

Analysts have said Indian pharmaceutical companies are expected to see a rise in operating margins on improved product mixes and cost control along with normalization in volume growth. Global brokerage firm CLSA has noted the rising contribution from differentiated products in the USA, a greater focus on higher-margin top brands in India and some sustenance of ongoing cost control measures are expected to lead to an improved margin profile.

In fact, HSBC has even revised its estimates and target share prices. In a note, it has said increasing adoption of low-cost generics by healthcare systems around the world should support growing demand in India's export markets.

"The secular growth story remains intact for the India pharmaceuticals market and the recovery seen in the past few months indicates resilient demand. Customer preferences for diversified sourcing such as the 'China+1' strategy should support demand for APIs," HSBC said, while referring to the steady domestic and export demand.

Commenting on the benign regulatory outlook, HSBC notes: "While the outcome of the US FDA inspections remains unpredictable, we believe India’s major pharma companies are better prepared for plant audits after upgrading quality controls systems in recent years. The FDA’s focus on consistency of supplies and improved communication with manufacturers augur well for the sector."