INDIAN PHARMACEUTICAL INDUSTRY - WHEREABOUTS & THE GROUND TO COVER

- May 28, 2021

GLOBAL POSITION ~ A GLIMPSE

MARKET SIZE:

Indian pharmaceutical industry stands at 3rd position in terms of volume and around 14th in terms of value globally. The size of the pharmaceutical market in India is around $40 billion, which is around 3% of the global pharmaceutical market.

EXPORTS:

{CAGR ~ compounded annual growth rate, SAGR ~ simple annual growth rate}

As can be seen in the above image, Indian exports have shown an annual CAGR of 3.63% over the last 5 years. Indian pharmaceutical exports were $ 20.14 billion in Jan 2021. Currently India’s share in global exports is 2.5% approximately.

REVENUE SHARE:

The major source of Indian pharmaceutical revenue comes from sale of generics. It's almost 71% of total revenue. The other major sources are OTC (20%) and patented products (9%).

GLOBAL SUPPLY

India supplies around 40% of the United states generics demand, 25% medicines requirement in the United Kingdom, 80% of the global AIDS vaccines.

Apart from these statistics, India is the largest vaccine producer in the world. It generates almost 11 billion trade surplus every year.

FUTURE POTENTIAL ~ THE ROAD AHEAD

Indian government has set a target for making Indian pharmaceutical industry a $130 bn industry by 2030. The major states of primary focus for this purpose are Gujrat, Telangana, Andhra Pradesh, Karnataka and Himachal Pradesh.

OPPORTUNITIES:

Many MNCs are desiring to invest in India. Moreover around $250bn patents will be expiring till 2024, this paves the success road for Indian pharmaceutical industry, as India will be the most attractive market.
India has 33% less cost of production as compared to western countries.
The labour cost in India is 50%-55% less as compared to western nations.

GOVERNMENT INITIATIVES:

Several government policies like Ayushman Bharat Yojna ~ provides rs 5lkh insurance cover per family per year for secondary and tertiary healthcare.
PMBJP (Pradhan Mantri Bhartiya Janaushadi Yojna) ~ provides quality medicines at affordable prices through dedicated outlets called as " Pradhan Mantri Bhartiya Janaushadi Kendras"
FDI policies ~ 100% Foreign Direct Investment (FDI) in pharmaceuticals in India is allowed under the automatic route for green-field pharma.

100% Fdi In Drugs And Pharmaceuticals In India is allowed in brownfield pharma; wherein 74% FDI in the Pharmaceuticals Sector is allowed under the automatic route and thereafter through government approval route.

These are some of the Initiatives by the government which has aggressively contributed to the recent growth of Indian pharmaceutical industry.

STATISTICAL CONCLUSION ~ ART OF NUMBERS

As I mentioned earlier, the Indian Government has targeted Indian pharmaceutical industry to reach $130 bn by 2030. Although it can be a challenging task as the current Indian Pharmaceutical market is only about $41 bn but the numerous advantages and opportunities, if utilized efficiently, can make it possible.

{bn ~ billion}

So let's have a look at following data,

Indian pharma industry:

2017 ~ $33bn

2021 ~ $41bn

CAGR ~ 5.7%

CAGR ~ compounded annual growth rate.

Target,

2030 ~ $130bn

Required CAGR ~ 12%

From 2017 to 2021, the Indian pharmaceutical industry has grown @5.7% CAGR, but in order to achieve the set target it needs to grow @12% CAGR which is almost double.

After considering numerous opportunities ahead, the cost efficiency in India and having deep research over Indian pharmaceutical industry’s performance, I expect it to grow at 9% - 10% CAGR over next 10 years.

So, as per 9% CAGR over next ten years Indian pharma industry will have a market size of $97bn - $100bn.

INVESTMENT DECISION :

The impressive expected growth makes the Pharma industry an investment hot spot, if you want to invest your money. Some of the top picks can be Cipla, Dr. Reddy Labs, Aurobindo Pharma. The reason that I have mentioned only these companies is that all of them have good return on equity and a healthy CAGR in sales and profits. This makes these companies a safer option to invest your hard earned money. All of these companies have the potential to offer good returns over a long period of time.

SHAURYA GUPTA

B.com Hons, University of Delhi

Financial Market Hons, Yale University

Disclaimer:

All the views here are backed by my own research, it is for spreading awareness and for educational purposes only. I do not have any intentions to manipulate the market prices of above-mentioned securities. Moreover, I may or may not have invested in the above-mentioned securities.

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