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The Indian pharmaceutical market (IPM) has returned to negative volume growth this Q3FY25 after two consecutive quarters of modest positive growth, according to Goldman Sachs report.
However, strong pricing growth (+5.3 per cent YoY) and the launch of new products from recent patent expiries (+2.6 per cent YoY) have continued to drive overall market performance. Management from leading companies suggests that volume growth is relatively better than what secondary market data reflects, though still below historical levels. Goldman Sachs forecasts that IPM volume growth will stabilize at low single digits in the coming quarters. The firm also anticipates pricing benefits to moderate starting next year, with the Wholesale Price Index (WPI) for 2024 likely to be below 2 per cent. In the US generics market, the report notes that price erosion has moderated since March 2023. However, Goldman Sachs cautions that this trend is temporary rather than structural. "We expect the price erosion to normalise and stabilise at mid-to-high single digits over the medium term." the report said.On the margins front, Indian pharmaceutical companies are expected to maintain strong gross margins, supported by favourable pricing in the US, softer input costs, and currency depreciation. "We expect the benefits of a sustained favorable pricing environment in the US (incl. one-off opportunities), softening of input costs and currency depreciation to continue helping India Pharma report strong gross margins." says the report. However, the report warns of potential input cost escalations, particularly due to freight and transportation issues in the Middle East. While rising R&D expenses and higher API prices may offset some gains, margins for FY25 are projected to remain healthy. Capital allocation has emerged as a critical focus area for pharmaceutical companies with strong cash reserves. The report highlights a shift in strategy as high valuations in India are prompting companies to explore other avenues, including share buybacks and international acquisitions. Additionally, investments in capacity building in the CRDMO space continue, despite delays in the BioSecure Act. (ANI)
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