American rating agency Moody's on Friday appreciated Indian pharmaceutical companies saying that in comparison to some global peers they (Indian Pharma Companies) exhibit strong business profiles supported by good products and geographic diversity.
Exhibit strong business profiles
"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.
Generics market second-largest in the world
Chaubal and Beketova have co-authored the Moody's report, titled "Indian Pharmaceutical Companies - A Deep Dive". According to the report, the Indian generics market, though forms only 1 per cent of the global pharmaceutical market by value, is the second-largest in the world, behind only the US in terms of volume. 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.
Ownership structure raises the risk of party transaction
The report also pointed out the ownership structures of the Indian companies 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.
Operating in diverse regulated and unregulated markets
The rating agency noted that the Indian pharmaceutical companies, which has left its footprints globally over the last several years is now operating 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.