Express Pharma
Home  »  COVID-19 Updates  »  Pharma supply chain disruptions following Covid-19 outbreak eases; sector outlook revised to stable from negative: ICRA

Pharma supply chain disruptions following Covid-19 outbreak eases; sector outlook revised to stable from negative: ICRA

0 517
Read Article

The global demand is largely expected to be stable for the industry owing to the inelastic nature of prescription drugs though some impact on volume growth due to lockdown and lower economic growth is likely

ICRA has revised its outlook on the Indian pharma industry to stable from negative in view of the easing of supply chain disruptions resulting from lockdown in parts of China following the outbreak of the coronavirus. The outlook was made negative earlier during the year, following supply chain disruptions related to critical API/ intermediates from China.

As per ICRA research, manufacturing activity has gradually started in China with shipments/air cargo arriving in India for APIs, intermediates and key starting materials (KSMs). This has led to production continuation for Indian players though the capacity utilisation across plants is yet to reach pre-COVID-19 levels. The lower capacity utilisation is largely contributed by restricted movement of personnel and availability of non-critical raw material (e.g. packaging material) during the lockdown period in India. Indian players hold two to four months of inventory (raw material and finished goods) and similar levels in the distribution channel (finished goods) which will largely suffice demand in the near term till situation normalises. The outbreak of the coronavirus in China and the consequent lockout in parts of China had earlier resulted in a shutdown of production units in China. The domestic pharma industry is highly dependent on imports, with more than 60 per cent of its API requirement being imported, and in some, specific APIs like cephalosporins, azithromycin and penicillin, the dependence is as high as 80 per cent to 90 per cent. Of the total imports of APIs and intermediates into India, China accounts for ~65 per cent-70 per cent.

The global demand to remain stable for Indian pharma industry owing to inelastic nature of prescription drugs though some impact on volume growth will be felt owing to lockdown (lesser OPDs/elective surgeries) and lower economic growth. The impact of lower demand will be felt more in less developed countries which are additionally negatively impacted, owing to low crude oil prices. Further, higher domestic sales during March 2020 led by stocking up of chronic and essential medicine will also have some impact on FY2021 sales.

As per ICRA research, the US revenue growth for Indian players remains exposed to delays in re-inspection of facilities under Warning letter and approval of limited competition products requiring pre-approval as USFDA has put on hold all routine inspections till further notice. Additionally, the ban on exporting several products within the EU will negatively impact Indian companies with European manufacturing bases. However, Indian players will benefit from INR depreciation vis-a-vis US$/EURO though part of the benefit will be nullified as several Emerging Market (EMs) currencies have sharply appreciated against INR.

While the domestic pharma manufacturers have not seen any significant increase in raw material prices owing to supply chain disruption, there will be slight moderation in profitability for Indian players in FY2021 contributed by a mix of lower demand and capacity utilisations, higher raw material prices and logistic costs during lockdown period. With a healthy balance sheet characterised by comfortable capital structure and coverage indicators, the credit profile is unlikely to be impacted for the Indian pharma sector by such moderation in profitability in FY2021. ICRA also believes that Indian companies are unlikely to modify spend on R&D development which will support their long-term growth prospects. In view, of the above, ICRA has revised its outlook on the Indian pharma industry to stable from negative.

Leave A Reply

Your email address will not be published.

Smart Pharma Packaging Technologies. Attend webinar & learn how to ensure the safety & efficacy of medicines & other healthcare supplies.
Register Now
close-image