Pharma Q1 Preview | A subdued quarter likely due to high base, rising costs and price erosion

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26 Aug, 2025 12:21

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The Indian pharmaceutical industry is expected to see a muted June quarter, as rising input and freight costs, stiff competition for generics in the US and high sales in the year-ago period will weigh on earnings, analysts have said.

According to a recent report from Jefferies Equity Research, “Q1FY23 price erosion seems to be in high single digits, per our assessment”.

Kotak Institutional Equities’ analysts, too, expect a subdued Q1FY23 due to “continued US generic price erosion, high COVID-led domestic base for most companies, raw material inflation and higher freight costs.” A weaker rupee, however, would provide some relief, Kotak analysts said in a note.

The industry witnessed high sales during the corresponding period last year due to high number of COVID cases in the country, which benefitted the domestic branded formulations business and resulted in a high base.

The generics business of Indian companies is, however, facing increased competition in the US, their main market. This has led to a significant price and margin erosion for most of the players, analysts said. Rising raw material and freight costs would further dent the margins in the June quarter.

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COVID shadow

The domestic formulations segment is expected to decline 8-10 percent year on year. “COVID-related therapies, especially anti-infectives/VMN, declined as the pandemic eased in India during the quarter while the respiratory, cardiac and hormone therapies would also witness decline because of the high base of last year,” Motilal Oswal Financial Services said in a report.

It expects the domestic formulations sales for Cipla to decline 15 percent on year and expect a 10 percent decline each for Dr Reddy’s and Sun Pharmaceuticals, mainly due to drop in COVID-related sales and last year’s high base.

The companies have started their promotional activities and have been strengthening their force of medical representatives (MRs) to enhance their business but this is likely to have a negative impact on the margins in the near term.

However, “the improved scope of taking inflation-linked price hikes (~10 percent YoY) for portfolio under the National List of Essential Medicines (NLEM) would offset the negative impact to some extent,” Motilal Oswal said.

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In the US, Indian companies are expected to see an overall sales growth despite the pricing pressures. The growth will likely be aided by new launches and an increase in the sale of specialty products.

Motilal Oswal expects new launches and market share gains in complex products such as triglyceride-lowering g-Vascepa for Dr Reddy’s, which is likely to witness a YoY growth of 15 percent.

Cipla’s G-Albuterol/lanreotide, which is used for gastroenteropancreatic neuroendocrine tumours, is likely to achieve a YoY sales growth of 17 percent. Sun Pharmaceuticals is expected to deliver an 8 percent YoY growth aided by strong specialty sales growth and bottoming out of Taro business.

Dr Reddy’s is likely to outpace other mainstream pharma companies with around 82 percent YoY growth in its earnings for the quarter, driven by higher other income due to the settlement of litigation.

Overall, experts expect 6-10 percent YoY sales growth in Q1FY23, however, on the operating front, they expect an 8-10 percent YoY decline in earnings before interest, tax, depreciation and amortisation.

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