Outlook On Indian Pharma Sector Improves As China Reopens

Rating agency ICRA has upgraded its outlook on the pharma sector from 'negative' to 'stable' restarting its manufacturing activity.

In February, the agency downgraded the sector as it believed that the lockdown in parts of China due to the outbreak of coronavirus pandemic would affect the drug manufacturing companies in India which are dependent on the neighbouring country for raw material supplies. It considered the possible shortage or increase in prices of essential active pharmaceutical ingredients (API). APIs are the basic ingredients for manufacturing drugs.

India, being the largest provider of generic drugs in the world, was expected to see a disruption in its supply chain, especially the smaller pharma companies that do not maintain large inventories.

In its latest report, ICRA said that manufacturing activity has gradually started in China with shipments and air cargo arriving for APIs, intermediates and key starting materials.

While this has helped drugmakers, their capacity utilisation across plants is yet to reach pre-lockdown levels. Restriction on movement of people has also hurt production levels and costs as companies have been paying salaries to employees who have been not able to work due to the lockdown in India.

Raw material prices have increased and there could be a slight "moderation" in profits of pharma companies due to higher costs, it said. On the exports front, ICRA said Indian companies remain stable for now, due to the inelastic nature of prescription drugs for chronic therapies. It is possible that companies might also gain because of the rupee's depreciation against the dollar, it said in the report.