Indian pharmaceutical industry, sometimes called pharmacy of the world, is the backbone of the global health care system. The Pharma sector has been one of the most lucrative in the Indian stock market with its robust manufacturing abilities along with the cost efficiency and growth in innovation. This article takes a look at the growth trajectory, profitability and potential, of Pharmaceutical Sector Stocks.
Indian Pharma sector Overview
By volume India is the third largest producer of pharmaceuticals and 14th by value. Nearly 20 per cent of the world’s generic medicines are supplied by the country. Furthermore, India accounts for a meager 60 per cent of the global vaccine production, and during global health crises such as the COVID-19 pandemic, vaccine production of India is indispensable.
The sector’s contribution to the Indian economy is significant
- Market Size – Expected to reach $65 billion by 2025, is valued at approximately $50 billion in 2023.
- Exports – In FY 2022-23, pharmaceutical exports were $25.4 billion that made India’s mark in the global market.
- Employment – about 2.7 million people are directly and indirectly employed by the industry.
Indian Pharma Sector is Growth Drivers
- Healthcare Demand on the Increase
Increased income, urbanization and awareness of healthcare are driving demand for quality medicines in India. Government’s thrust on universal healthcare under, Ayushman Bharat, boosts domestic consumption.
- Indian Generics: A Global Dependency
India’s ability to manufacture low-cost generics of good quality, coupled with its low-cost generic production prowess, has helped it emerge as a significant supplier to regulated markets such as the US and Europe. About 70-80% of India’s pharmaceutical exports are generic.
- Innovation and R&D
R&D investments are rising on the Indian pharmaceutical companies. Top players like Sun Pharma, Dr. Reddy’s Laboratories and Cipla earmarked 7-10 percent of revenues to R&D for new drug development, biosimilars and specialty drugs in FY 2023.
- Vaccine Manufacturing
India’s production prowess in vaccines was spotlighted during the COVID 19 pandemic with companies such as Serum Institute of India and Bharat Biotech playing important roles around the world in the process of immunization. To grow, this segment is dependent on increasing research and production investments in vaccine research.
- Government Policies
- PLI Scheme – Under the Production-Linked Incentive (PLI) scheme for pharmaceuticals, an allocation of ₹15,000 crore was made for encouraging domestic manufacture of active pharmaceutical ingredients (API) and key intermediates.
- FDI Liberalization – The pharmaceutical sector allows 100% FDI and it attracts global investment.
The Financial Performance of the Pharma Sector
- Revenue Growth
Over the past decade, the sector has seen a CAGR of 9-11 per cent due to domestic demand and export. Top listed pharma companies combined recorded ay ₹ 4 lakh crore revenues in FY 2023 with a big chunk coming from the export.
- Profit Margins
As generics are produced in abundance with low producing costs and huge demand globally, pharmaceutical companies usually earn good profit margins.
- EBITDA Margins – Strong operational efficiency is demonstrated by most top players maintaining EBITDA margins in the range of 18 to 25%.
- Net Profit Growth – For example, India’s largest pharmaceutical company, Sun Pharma, increased its net profit from ₹8,500 crore in FY 2023, up 12% YoY.
- Stock Market Performance
Outperforming other defensive sectors in volatile markets, the Nifty Pharma Index delivered 8-10% annualized returns over a five year period.
Strong fundamentals have been the basis for continuous stable returns from market leaders like Dr. Reddy’s Laboratories, Cipla, and Divi’s Laboratories.
- Export Contribution
Profitability continues to depend on export revenues. Since India’s pharma exports are spread across emerging markets, Europe and the U.S., the latter is responsible for 30-40% of dolals. In regulated markets, companies such as Lupin and Aurobindo Pharma continue to grow export despite pricing pressures.
Challenges and Risks
- Pricing Pressure in the U.S. – In the U.S. generic market, price eroded due to intense competition and intense regulatory scrutiny.
- Dependence on API Imports – India has been trying to localize but imports 60 to 70 per cent of APIs from China, where the sector is reliant on supply chains and thus vulnerable.
- Regulatory Hurdles – It is unlikely that product recalls and penalties in export markets will not hit profitability.
Current Market Capitalizations for the Top 10 Pharma Companies in India
Sun Pharmaceutical Industries Limited:
Market Capitalization:
Sun Pharma boasts an impressive market capitalization of ₹3,888 billion as of FY24, solidifying its position as a global leader in specialty generics.
Global Revenue (2024):
The company achieved consolidated revenues of ₹478 billion in FY24, marking a 10.4% growth compared to the previous fiscal year.
Manufacturing Facilities:
With 41 manufacturing sites spread across six continents, Sun Pharma ensures a robust supply chain and operational excellence.
Employee Count:
Sun Pharma is powered by a diverse and skilled workforce of over 43,000 employees, representing more than 50 nationalities worldwide.
Specialty Focus:
The company specializes in dermatology, ophthalmology, and onco-derm segments, with 26 specialty products contributing approximately 18% to its global turnover. Its innovative product portfolio includes globally recognized brands such as Ilumya, Winlevi, and Cequa.
Subsidiaries:
Sun Pharma’s global presence is further strengthened by its subsidiary, Taro Pharmaceutical Industries, which recorded a 9.8% growth in revenue to USD 629 million in FY24.
Active Pharmaceutical Ingredients (APIs):
Sun Pharma has a portfolio of over 380 APIs, supporting vertical integration and innovation in complex formulations.
Leadership in India and Global Reach:
As the largest pharmaceutical company in India and the 13th largest generic pharmaceutical company in the US, Sun Pharma reaches over 100 countries with its high-quality, affordable medicines.
Dr. Reddy’s Laboratories:
Market Capitalization:
Dr. Reddy’s Laboratories, a global pharmaceutical leader, maintains a robust market presence. Its market capitalization as of 2024 underscores its leadership in delivering innovative, affordable, and accessible healthcare solutions worldwide.
Global Revenue (2024):
With a revenue of US$ 3.35 billion in FY2024, Dr. Reddy demonstrated 14% year-on-year growth, driven by its performance in the U.S., key emerging markets, and its innovative product pipeline.
Manufacturing Facilities:
The company operates 23 state-of-the-art manufacturing facilities globally, adhering to the highest standards of quality and sustainability. These include facilities certified by ISO 45001 for occupational health and safety.
Specialty Focus:
Dr. Reddy’s specializes in therapeutic areas like oncology, diabetes, cardiovascular health, gastrointestinal disorders, and pain management. The company is also making strides in biosimilars, digital health solutions, and consumer healthcare.
Subsidiaries:
Dr. Reddy’s subsidiaries include:
- Aurigene Oncology Limited: Focused on novel drug discovery and early clinical development.
- Aurigene Pharmaceutical Services: Providing contract research, development, and manufacturing services.
Lupin Limited:
Market Capitalization:
Lupin Limited, a pharmaceutical industry leader, has solidified its position with a robust market cap, reflecting its financial strength and investor confidence.
Global Revenue (2024):
In 2024, Lupin achieved impressive global revenue, showcasing its ability to deliver innovative healthcare solutions worldwide.
Manufacturing Facilities:
Lupin operates several state-of-the-art manufacturing facilities strategically located globally, ensuring high-quality production standards and efficiency.
Specialty Focus:
Lupin is dedicated to specialties such as pharmaceuticals, biotechnology, and innovative healthcare solutions, reinforcing its role as a key player in the healthcare sector.
Mankind Pharma:
Market Capitalization:
As of FY 2023-24, Mankind Pharma maintains a strong market presence as the 4th largest pharmaceutical company in India by value. The company’s strategic growth ensures robust market capitalization, reflecting its leadership in innovation and consumer trust.
Global Revenue (2024):
Mankind Pharma achieved a remarkable revenue milestone of ₹10,335 crores in FY24, with 92% of its revenues derived from the domestic market, showcasing its deep-rooted impact within India while also exploring international markets like the U.S., Mexico, and other emerging territories.
Manufacturing Facilities:
Mankind Pharma operates 30 advanced manufacturing facilities across key locations, including Paonta Sahib, Haridwar, Sikkim, Udaipur, Pune, and Visakhapatnam. These facilities adhere to international quality standards and play a pivotal role in delivering high-quality medicines.
Specialty Focus:
Mankind Pharma excels in a diversified portfolio, focusing on chronic therapeutic segments such as cardiac, anti-diabetes, respiratory, and neurology. The company has also made significant strides in consumer healthcare with flagship brands.
Subsidiaries:
Mankind Pharma’s global expansion includes subsidiaries in the United States and Singapore, catering to niche pharmaceutical needs and enhancing its international footprint. Additionally, acquisitions such as Panacea Biotec’s brands and collaborations with companies like Novartis and AstraZeneca demonstrate its focus on strategic growth.
Aurobindo Pharma Limited:
Market Capitalization:
Aurobindo Pharma is a dominant player in the pharmaceutical sector. While specific market cap values for FY24 weren’t stated in the report, the company’s robust financial performance—such as ₹29,002 crores in revenue—positions it as one of the top contenders in the global market.
Global Revenue (2024):
₹29,002 crores: Aurobindo Pharma recorded an impressive 17% year-on-year revenue growth, showcasing its leadership in delivering high-quality pharmaceutical products across 150+ countries.
Manufacturing Facilities:
Aurobindo operates 29 state-of-the-art commercial manufacturing plants worldwide.
Special focus: 13 facilities dedicated to Active Pharmaceutical Ingredients (API), producing 19,000 MT capacity.
Significant backward integration with Penicillin-G and 6-APA facilities operational by FY25.
Specialty Focus:
Aurobindo Pharma focuses on:
- Biosimilars
- Complex Generics
- Therapeutic areas such as oncology, cardiovascular, CNS, gastroenterology, dermatology, and respiratory disorders.
Subsidiaries:
Key subsidiaries driving innovation and growth:
- CuraTeQ Biologics: Focused on biosimilars with 14 products in the pipeline, targeting oncology and immunology.
- Eugia Pharma: Specializing in oncology and injectable products, showcasing robust growth in global markets.
- AuroPeptides: Develop peptide-based APIs catering to diabetes and oncology.
Mankind Pharma:
Market Capitalization:
As of FY 2023-24, Mankind Pharma maintains a strong market presence as the 4th largest pharmaceutical company in India by value. The company’s strategic growth ensures robust market capitalization, reflecting its leadership in innovation and consumer trust.
Global Revenue (2024):
Mankind Pharma achieved a remarkable revenue milestone of ₹10,335 crores in FY24, with 92% of its revenues derived from the domestic market, showcasing its deep-rooted impact within India while also exploring international markets like the U.S., Mexico, and other emerging territories.
Manufacturing Facilities:
Mankind Pharma operates 30 advanced manufacturing facilities across key locations, including Paonta Sahib, Haridwar, Sikkim, Udaipur, Pune, and Visakhapatnam. These facilities adhere to international quality standards and play a pivotal role in delivering high-quality medicines.
Specialty Focus:
Mankind Pharma excels in a diversified portfolio, focusing on chronic therapeutic segments such as cardiac, anti-diabetes, respiratory, and neurology. The company has also made significant strides in consumer healthcare with flagship brands.
Subsidiaries:
Mankind Pharma’s global expansion includes subsidiaries in the United States and Singapore, catering to niche pharmaceutical needs and enhancing its international footprint. Additionally, acquisitions such as Panacea Biotec’s brands and collaborations with companies like Novartis and AstraZeneca demonstrate its focus on strategic growth.
Future Outlook
- Specialty Drugs and biosimilars
With biosimilars now running at double-digit margin levels, Indian pharma companies are increasingly seeing the potential of high margin specialty drugs. According to estimates, the global biosimilars market would be expanding at a CAGR of 24 per cent, in which Indian players are well placed to grab a significant share.
- Digital Transformation
In recent years, digital health initiatives, telemedicine, and AI based drug discovery are picking up in the sector. Companies that would invest in these technologies are likely to reap increased operations efficiency and innovation.
- Expansion in Emerging Markets
On the other hand, India’s pharma sector is expanding its presence in emerging markets in Africa, Latin America and Southeast Asia where likely demand for affordable medicines is growing.
- Domestic Growth Opportunities
Increasing healthcare spending and government initiatives is expected to drive the growth of Indian stock market at a CAGR of 10 – 12 %.
Conclusion
The Indian pharmaceutical sector stands as a pillar of strength in the stock market, offering a unique mix of stability and growth. With robust fundamentals, innovation-driven strategies, and supportive government policies, the pharma sector is poised to capitalize on domestic and global opportunities. Investors looking for defensive plays with strong growth potential should consider the pharma sector a valuable addition to their portfolios. However, they must remain mindful of regulatory challenges and market-specific risks while making investment decisions. The Indian pharma story is far from over it’s evolving, and the best chapters are yet to come. For more information and detailed analysis before investing in the stock, Visit Jarvis Invest.