Indian pharma companies better off than global peers: Moody's
Indian pharmaceutical companies possess stronger financial profiles than global counterparts due to economic growth forecast, solid product pipeline and geographical diversity further adding that merger and acquisitions (M&As) are likely going forward, said Moody's Investors Service.
"When compared with their global counterparts, Indian pharmaceutical companies have stronger financial profiles with low leverage and high coverage metrics," Moody's vice president and senior analyst Kaustubh Chaubal, said in a press release on Friday.
Moody's has recently released a presentation titled 'Indian Pharmaceutical Companies -- A Deep Dive' that compared the Indian pharmaceuticals firms to global peers and was co-authored by Kaustubh Chaubal and Diana Beketova.
As per the ratings agency's findings, the top Indian pharma companies although they are small in size when compared to global peers exhibit stronger financial profiles as most are promoter-owned and operate with conservative financial policies.
The 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, cited Moody's.
"However, this ownership structure also raises the risks of related party transactions, potential slower responses to rapidly changing industry conditions and corporate underperformance," it added.
According to Moody's, Indian pharma market is highly fragmented with the largest player accounting for 8.8% of the $12 to $15 billion (nearly Rs 79,833 crore to Rs 99,791.3 crore) market.
The ratings agency has further projected merger and acquisitions (M&As) in Indian pharmaceutical sector due to rise in competition, attractive growth opportunities with consolidation in global generics, rise in regulatory risks, among others.
"However, increasing competition, challenges in preserving their historical superior profitability and consolidation among large global generic companies will drive M&A activity for the Indian pharmaceutical sector," Moody's associate analyst Diana Beketova, said in a statement.
On the consolidation of pharma companies globally and its impact on India, Moody's said that the Indian pharmaceutical sector is not immune to this trend.
The ratings agency expects that Indian companies will explore inorganic growth primarily overseas as the large promoter ownership stakes may dissuade domestic M&A activities.