Thursday, 30 May 2013

Sector Snapshot - Pharmaceuticals

The Indian pharmaceutical sector is the 3rd largest in the world by volume and 14th largest market by value. This very essential sector has shown robust growth and is still growing. The sector has potential to increase to USD34 billion by 2016 from the current USD17.4 billion in 2012.

Such doubling of growth will give investors opportunities similar to that witnessed when the IT industry gained strength. Experts feel that next to IT, Pharma industry is the next big thing for India. Good stocks in pharma sector do exist where investor can take his/her pick.

Over 75% of the Pharma market belongs to organised sector. The biggest source of revenue for the sector are exports which contribute 40%-45% of the revenue. Most of the exports are to North America and Europe. India accounts for 10% of global pharmaceutical production.

The main strengths of Indian Pharma industry is the highly skilled manpower availability and cost advantages relating to manufacturing and R & D.  India has 120 USFDA (United States Food & Drug Administration) approved plants (the highest number outside US) and about 80 UK standard approved plants which supply generic drug variants of high quality and low cost. In the future too, more MNC companies are expected to take advantage of the Indian Pharma industry to produce generic variants of drugs and also for cost reduction in R & D.

Business diversification opportunities exist as foreign pharma companies outsource work to Indian counterparts for cost effectiveness in manufacturing under CRAM (Contract Research & Manufacturing Services). Adding to that, there is a huge cost advantage of about 50% for clinical trials too in India.

In our opinion, with so much going for the Pharma industry, it is worthwhile to take some good stocks in this sector as valuations will certainly increase in the coming 3 to 5 yrs, thereby leading to good returns.