India’s pharma market grew 5.8 percent year-on-year in August, continuing a moderate pace of expansion for the third month in a row on subdued sales of anti-infective and respiratory drugs.

After stellar double-digit sales growth from February to April, the moderation in sales for the third straight month, after 5.2 percent and 6.6 percent in June and July, respectively – has prompted concerns among analysts.

Although analysts at Kotak Institutional Equities expect an 8-15 percent organic domestic sales growth for the pharma companies they cover in FY24, driven by pricing and new launches, they said the recent weakness can play spoilsport. It said the slowdown in sales growth was attributed to fewer infections due to a sporadic monsoon.

“This is reflected in the 3-4 percent on year decline in anti-infectives and respiratory segments,” the brokerage firm noted.

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Acute therapies

The subdued sales in the anti-infectives and respiratory segments also weighed on overall sales of acute therapies, which grew 4 percent on year in August. Motilal Oswal Financial Services said this affected the overall performance of the Indian pharma market to some extent.

The acute segment makes up 62 percent of the Indian pharma market and a lag in sales in this category is a drag on domestic sales growth.

Chronic therapies resilient

Sales of chronic therapies remained resilient, growing 9 percent on-year in August, delivering on expectations of the segment outperforming acute therapies. Chronic therapies comprise 38 percent of domestic pharma sales.

However, ICRA and other analysts said the growth of chronic therapies will be higher than that of acute therapies going forward, with the increasing incidence of lifestyle diseases and the long duration of medicine courses for chronic diseases.

KIE attributed the bulk of pharma sales growth to be driven by the ophthalmic, immunomodulators, vaccines and cardiac categories, all belonging to the chronic therapies segment. Motilal Oswal attributed price hikes as another growth driver in August.

Also Read | Indian pharma market continues to cool down in July on lag in acute therapies

On a MAT basis (market share by sales value for a moving annual total, meaning sales growth in the 12 months up to the last published month), growth was 10.1 percent in August against a base of 7.2 percent. KIE said that on a MAT basis, growth was led by 470 basis points (bps) on-year contribution from higher pricing, 280 bps from new launches, and 260 bps from volumes.

Listed companies

Ajanta Pharma emerged as the leader in terms of growth in August with sales growth of 11.6 percent on year.

“Ajanta outperformed IPM led by ophthal therapy (sales up 27 percent; 28.5 percent share of total sales), pain therapy (sales up 17 percent; 8 percent share of total sales), and derma therapy (sales up 13 percent; 20 percent share of total sales),” Motilal Oswal said in its report.

Other companies that outperformed the market were Torrent Pharma, Sun Pharma, Ipca Labs, JB Chemicals and Pharmaceuticals, and Sanofi India. On the flipside, the key underperformers were Pfizer, Indoco Remedies, GlaxoSmithKline Pharma, Alembic and Zydus Lifesciences.

What may play spoilsport

KIE said acute-heavy pharma companies are trading at an implied valuation of 30-32 times their FY25 earnings-per-stock estimates, while those heavy on chronic therapies command a valuation of 35-40 times their FY25 EPS.

“We note current valuations imply the ongoing steady decline in the share of branded generics will continue and do not factor in any further growth deceleration over the next few years,” it said. The share of domestic generics in the Indian pharma market has been declining recently as the government pushed for generics in a bid to make critical drugs more affordable.

The National Medical Commission issued guidelines on August 2 that mandated doctors to prescribe only generic drugs. Even though the new guidelines were put on hold due to a backlash from the Indian Medical Association and the Indian Pharmaceutical Alliance, it still triggered concerns among stakeholders.

Also Read | Weak acute drug sales pose risk to Indian pharma’s growth tempo

On that account, KIE said if the share of branded generics slips faster because of the change in policy, there is scope for derating for most domestic branded generics companies.

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