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Indian pharma companies’ profiles better than global peers: Moody’s

New Delhi : The Indian pharmaceutical companies exhibit strong business profiles underpinned by good products and geographic diversity as compared to some global peers, American rating agency Moody’s said on Friday.

“The Indian pharmaceutical companies, despite their smaller size, exhibit strong business profiles when compared to some of their global peers, underpinned by their good product and geographic diversity,” Moody’s Investor Service said in a statement from Singapore.

“When compared with their global counterparts, the Indian pharmaceutical companies have stronger financial profiles with low leverage and high coverage metrics,” Moody’s Vice President Kaustubh Chaubal said in the statement.

“Increasing competition, challenges in preserving their historical superior profitability and consolidation among large global generic companies will drive M&A (merger and acquisitions) activity for the Indian pharmaceutical sector,” said Moody’s associate analyst Diana Beketova.

The Moody’s report, titled “Indian Pharmaceutical Companies – A Deep Dive”, has been co-authored by Chaubal and Beketova.

According to it, the Indian generics market is the second-largest in the world, behind only the US in terms of volume, although it forms only 1 per cent of the global pharmaceutical market by value.

The Indian companies’ R&D investments are low in absolute terms, but large relative to their size — at 5 per cent to 8 per cent, Moody’s said.

“These investments are likely to ramp up as companies’ start targeting complex generics, biosimilars and niche specialty drugs,” it added.

The report said the Indian companies are also unique in terms of their ownership structures, with majority owned by founding family members — or promoters — “while most Moody’s-rated global pharmaceutical firms have dispersed ownership structures.”

“Ownership by a founding family tends to align creditor and promoter-owner interests, thereby resulting in a more cautious risk appetite and low financial leverage — in turn underpinning the companies’ strong credit profiles,” the statement said.

“However, this ownership structure also raises the risks of related party transactions, potential slower responses to rapidly changing industry conditions and corporate under-performance,” it added.

The rating agency noted that over the last several years, the Indian pharmaceutical companies have grown their global presence and now operate in diverse regulated and unregulated markets.

“However, they also face regulatory challenges, with a rising number of adverse findings by the US Food and Drug Administration (FDA) hurting their US sales and causing supply disruptions,” it said.

In this connection, Chemicals & Fertilisers Minister H.N. Ananth Kumar has recently said that he is pursuing the case for making an independent ministry for pharmaceuticals, so that all decisions regarding the industry could be taken under a single roof.

Speaking at a function here to mark the Foundation Day of the National Pharmaceutical Pricing Authority (NPPA), the minister said the pharmaceutical industry has risen to almost $37 billion and Indian medicines are being exported to over 200 countries.

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