Pharma ingredient producers to see 7-8% revenue surge by 2029

ICRA’s report projects that the revenue for domestic active pharmaceutical ingredient (API) producers in India will grow by 7-8% annually through 2029. Revenue is expected to increase from USD 13-14 billion in 2023, driven by the pharma ingredient  formulations sector, an aging population, rising chronic disease rates, and a growing demand for contract manufacturing.

Operating profit margins for API companies are likely to improve by FY2025. Despite previous challenges such as fluctuating earnings due to volatile raw material costs and supply chain issues, the industry is on track for steady growth.

Rating agency ICRA has projected a 7-8% increase in the revenue of domestic active pharmaceutical ingredient (API) producers by 2029. This growth is expected to result in a compound annual growth rate (CAGR) of 7-8% from 2023 to 2029, starting from an estimated revenue of USD 13-14 billion in 2023. The anticipated growth is driven by several factors, including the steady expansion of the pharmaceutical formulations industry, a rising geriatric population, a higher prevalence of chronic diseases, and an increased demand for contract manufacturing. Additionally, global customers are diversifying their supply chains and focusing more on domestic sourcing, which supports this positive outlook.

ICRA also forecasts a modest improvement in the operating profit margin (OPM) for its sample companies by FY2025. Despite this optimistic forecast, the domestic API sector has faced considerable earnings volatility between FY2021 and FY2023. This volatility was largely due to rising raw material costs, which were exacerbated by elevated crude oil prices and pandemic-induced lockdowns in China. These issues led to global shortages of key starting materials (KSMs) and APIs.

As these challenges ease, ICRA expects a revenue increase of 7-8% for its sample companies in FY2025, following a projected 3-5% rise in FY2024. Nonetheless, the agency will continue to monitor potential risks, such as subdued demand from key export markets like Europe and ongoing tensions in the Red Sea, which could affect supply chains and freight costs. In FY2024, India imported APIs and bulk drugs worth Rs 37,700 crore, accounting for 35% of its total API requirements, with imports from China making up 70% of this total, highlighting the significant role of Chinese suppliers in India’s API market.