India’s pharmaceutical sector is expected to record stronger revenue growth of 11-13 percent this fiscal, compared with 8 percent last fiscal, driven by accelerating exports and firm domestic demand, according to an analysis by Crisil Ratings.

However, the revenue growth is expected to face pressure at the earnings level, with higher raw material, energy and freight costs projected to reduce operating margins by 150-200 basis points (bps). Despite the anticipated margin moderation, strong cash generation, liquidity and healthy balance sheets are expected to support the sector’s credit profiles.

Crisil’s analysis covers nearly 190 pharmaceutical companies rated by the agency, representing around half of the sector’s revenue in the previous fiscal year.

The pharmaceutical sector, which is dominated by generics, generates nearly equal revenue from domestic and export markets. Formulations account for around 83 percent of exports, with approximately 57 percent of formulation exports going to regulated markets and the remainder to semi-regulated markets.

Export growth is expected to broaden beyond the US, with complex generics and biosimilars supporting expansion in Europe, while branded generics and new product launches are expected to drive growth across Asia, Africa and Latin America.

Sehul Bhatt, Director, Crisil Intelligence, said export growth is projected at 14-16 percent in rupee terms this fiscal, supported by a broader geographic and product mix. In the US, differentiated product launches and inventory normalisation are expected to partly offset continued pricing pressure.

The domestic pharmaceutical market is projected to grow 9-11 percent this fiscal, with chronic therapies expected to remain a key growth driver amid the rising prevalence of lifestyle-related diseases.

Domestic growth is also expected to benefit from annual price revisions of 5-6 percent and a recovery in volume growth to 4-5 percent, compared with around 2 percent in each of the previous two fiscals. New product launches, stronger prescription demand, improved field-force productivity and greater penetration into tier-2 and tier-3 markets are expected to support volume growth.

Aditya Jhaver, Director, Crisil Ratings, said operating margins are expected to moderate by 150-200 bps to 21.0-21.5 percent this fiscal. Higher energy, freight and feedstock costs, amid geopolitical volatility in West Asia, are expected to outweigh near-term benefits from operating leverage and a stronger product mix.

According to Crisil Ratings, robust balance sheets and liquidity buffers should provide pharmaceutical companies with sufficient headroom to absorb the expected margin pressure without materially weakening their credit profiles.