Strong Demand and PLI Boost Drive 7-8% CAGR for India's API Sector

New Delhi, Aug 13 (KNN) In a new report released on Monday, ratings agency ICRA projects robust growth for India's active pharmaceutical ingredients (API) sector.

The agency forecasts a compound annual growth rate (CAGR) of 7-8 per cent for its sample set of API producers through 2029, with revenues expected to climb from an estimated USD 13-14 billion in 2023.

This growth trajectory is attributed to several key factors. Rising demand in the pharmaceutical formulations industry is expected to drive expansion, alongside an increasing geriatric population and higher prevalence of chronic diseases.

Additionally, there's growing demand for contract manufacturing as global customers seek to diversify their supply chains. The industry is also benefiting from a greater focus on domestic sourcing.

ICRA's analysis, based on a sample of ten API firms, also predicts a mild improvement in operating profit margins (OPM). The agency expects OPM to reach 12-14 per cent in FY25, up from an estimated 11-13 per cent in FY24.

This positive outlook comes after a period of volatility between FY21 and FY23, during which the industry faced headwinds such as rising raw material costs, elevated crude oil prices, and supply chain disruptions due to pandemic-related lockdowns in China.

Deepak Jotwani, Vice President at ICRA and Sector Head for Corporate Ratings, commented on the findings: "We expect revenues of our sample set of companies to grow by 7-8 per cent in FY25, following an estimated increase of 3-5 per cent in FY24."

However, Jotwani cautioned that subdued demand in key export markets like Europe and ongoing tensions in the Red Sea affecting supply chains and freight costs remain areas of concern.

The report also highlights the positive impact of the Indian government's production-linked incentive (PLI) scheme for the bulk drugs industry. ICRA notes that approximately 62 per cent of the originally planned Rs 6,500 crore investment has been made across 32 commissioned projects out of a total of 48 envisaged under the scheme.

As the industry stabilises and most companies in ICRA's sample complete their capacity expansions, capital expenditure is projected to decrease to Rs 5.6 billion in FY25 from an estimated Rs 7.6 billion in FY24.

This comprehensive analysis suggests a promising future for India's API sector, positioning it as a key player in the global pharmaceutical supply chain. However, industry watchers will need to keep a close eye on geopolitical factors and market dynamics that could impact this growth trajectory.

(KNN Bureau)