India Ratings and Research (Ind-Ra) has projected weak growth in prices and volumes for active pharmaceutical ingredients (APIs) in India for FY25. This is attributed to competition from Chinese imports and exports. Despite this, lower raw material costs have cushioned the effects of price declines. This, combined with forward integration into the formulations business, has resulted in expanded EBITDA margins for pharmaceutical companies.
The decline in API prices has ranged between 20 per cent and 50 per cent for key molecules over the past year. According to Ind-Ra, while the steep price declines have slowed since the second quarter of FY25, the competition from Chinese players in large volume molecules will likely continue to pose challenges. In some cases, import prices have fallen by more than 50 per cent year-on-year, reaching uneconomical levels even for Chinese suppliers.
Ind-Ra has observed a significant increase in the imports of drug intermediates and bulk drugs used in the manufacture of APIs and formulations from China. This has exacerbated the downward pressure on realisations. The total volume of imports from China grew over 20 per cent year-on-year during the first quarter of FY25, with the import volumes of some large molecules increasing by over 80 per cent year-on-year.
In terms of exports, while APIs to regulated markets are long-term in nature with limited pricing erosion, Ind-Ra believes that Chinese competition could lead to significant pricing and profitability declines in non-regulated markets. API export volumes declined by 8 per cent year-on-year during the first quarter of FY25. Ind-Ra expects price stabilisation from the second half of FY25 and into FY26, supported by an improving demand scenario after a weaker first half.
Indian API companies have diversified portfolios, which has helped offset the impact of pricing weakness in certain molecules with lower raw material costs over the past year. This has led to an improvement in gross margins for API players. Despite a year-on-year decline in revenue growth, a gross margin improvement of over 300 basis points and healthy capacity utilisation have resulted in an overall improvement in EBITDA.
“Despite the weakness in API pricing over the past few quarters, the revenue growth was driven by volumes during FY24, which may not sustain in FY25. The decline in raw material costs, better cost control and portfolio diversification have resulted in stable credit metrics for Ind-Ra rated pharma portfolio,” says Vivek Jain, Director at Ind-Ra.
API prices have faced a steep decline over the past year in both domestic and export markets. This has been driven by aggressive pricing from Chinese suppliers, stabilisation of supplies from China, excess capacity due to past capital expenditures and the Production-Linked Incentive scheme, and weak export demand. The fall in domestic API prices has been in the range of 15 per cent – 40 per cent, while declines in export API business have been steeper, exceeding 25 per cent.
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