India’s pharma exports are expected to reach Rs 1,10,000 crore by year 2015-16 from Rs 91,000 crore last fiscal, says India Ratings & Research (Ind-Ra). The growth rate will moderate to 10-12 percent year-on-year, from about 14 percent in 2013-14 as fewer patents are lined up for expiry.

According to the report, the pharmaceutical industry continues to benefit from lower cost of research and production which aids manufacturing for exports. On strengthened quality and control processes, the Indian manufacturers will face fewer regulatory hurdles in FY’16.

Last year, import alerts reduced to eight from 21 in 2013 due to quality measures implemented by companies. The rating agency has maintained a positive outlook on the pharmaceuticals sector for FY’16 because of continued strong export growth expectations backed by better regulatory compliance track record and patent expiry.

Exports growth is likely to be driven by fully operational US Food and Drug Administration (USFDA) facilities, led by restored regulatory approvals. The growth expectation continues to rest on US$ 24.4 billion (US sales) drugs, which are expected to go off patent by the end of 2016. The US emerges as the single largest destination with around 27 percent of India’s pharmaceutical exports to the US in FY’14 as against 25.5 percent in FY’13.

As per the report, the position is expected to continue in FY’16 as well. Apart from expanding organically the large pharmaceutical manufacturers are most likely to continue to look for in-organic growth opportunities in India and abroad in FY’16.

The report further adds that top-line growth and steady margins will support the capital expansion ensuring the maintenance of comfortable credit metrics. Ind-Ra predicts that widespread regulatory actions by overseas regulators could affect exports. Any further sweeping actions, such as imposing substantial penalties, will also impact bottom lines and credit profiles of domestic market players.

The highly leveraged acquisitions could further stress credit profiles. The report also states that the success in acquiring marketing exclusivities in the regulated markets and successfully commercialising bio-generic molecules can boost the sector’s earnings and, if used to reduce debt, could also prove beneficial for the individual companies.

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