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Indian Pharmaceuticals - Sky is the limit! - IDFC
Posted On : 2012-09-27 21:56:37( TIMEZONE : IST )
BSE Healthcare Index has risen by a whopping 88% vs 15% increase for Sensex in the last three years. At 37% premium to Sensex 1-yr forward P/E, concerns have emerged around the sector's ability to sustain growth at this pace. A top-down view of the opportunity, however, helps allay the concern. In CY11, top-10 Indian pharma players had only 3.3% share in the US$228bn global generics spend (ex-India) despite 17% CAGR for CY06-11 vs sub-12% for the industry. IMS estimates generics spend to grow to $386bn by CY16. Given their growing competitiveness, we expect Indian players to gain further ground. A 70bp market share gain over CY11-16 can drive >2x growth in exports for the top-10 players. This, coupled with estimated growth of 14-17% in the domestic market, suggests robust medium-term growth potential for Indian pharma.
No slowdown in global spending: Global spending on medicines is estimated to grow from $956bn in CY11 to ~$1.2trn in CY16 (4.5% CAGR). Global generics spend (ex-India) is, however, expected to grow faster (11% CAGR to $386bn). Also, share of top-10 Indian players is merely 1.1% of total spending (~$11bn) and 3.3% of generics spending ($7.4bn; ex-India), implying enough room for growth.
US generics and, increasingly Pharmerging markets, to drive growth: Pharmerging markets would lead the global generics spend with ~16% CAGR over CY11-16E. Top-10 Indian players are 1.4% of these markets. US will remain the single largest market at $81bn by CY16E (>12% CAGR). Top-10 Indian players (~$4bn sales) currently have only ~8.6% share of the US market but they should gain share given their much-stronger ANDA pipelines. At ~10% market share, sales can double to ~$8bn by CY16.
Demand a non-issue; execution capabilities to drive Indian pharma's future: Given an enviable combination of globally competitive business models with a mere 3.3% share of the addressable market, we believe sky is literally the limit for the Indian pharma companies that can strategize and execute effectively. Our top bets include, Dr Reddy's, Cipla, Sun Pharma, Glenmark, Ipca Labs and Strides Arcolab.
