With inelastic demand for drugs and resumption of production to the near pre-Covid levels by Q3 FY2021, revenue growth for IPM (Indian Pharmaceutical Market) is expected to be 7-9% in FY2021 despite muted growth in Q1 FY2021, the credit rating agency ICRA said in its report.

"The revenue growth in FY2022 is expected to be slightly better at 8-11%, though lower incidences of acute diseases, lesser OPDs and elective surgeries may continue to have some bearing on growth and will depend upon the course of the pandemic," the rating agency said.

The API/KSM (Key Starting materials) supplies from China, which were initially hit due to the Covid19, have resumed gradually since March 2020 and are nearing the normalcy levels. Approximately 60% of the APIs/KSM consumed is imported from China.

Production disruptions owing to restrictions in mobility of manpower and materials eased significantly after the first few weeks of the lockdown. At present, the production has reached 90-95% of the pre-Covid levels. The profitability has improved in H1 FY2021 owing to lesser overheads during the lockdown period -primarily travel, marketing and selling expenditure. The trend is expected to reverse once the pandemic situation resolves and FY2022 margins will remain in line with the pre-Covid levels, ICRA said.

The credit metrics of leading pharma companies are expected to remain stable in view of future growth prospects in regulated markets and relatively strong balance sheets. The capital structure and coverage indicators are expected to remain strong despite pressure on profitability and a marginal rise in debt levels given the inorganic investments, ICRA added.

The key sensitivity to ICRA's view remains productivity of R&D expenditure, increasing competition in the U.S. generics space and operational risks related to increased level of due diligence by regulatory agencies.

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