Not all segments flourished, as ophthalmology and respiratory therapies lagged, reflecting the diverse nature of demand in the Indian market
Chronic therapies dominated the performance in Q2FY2025, with cardiac, gastrointestinal, anti-diabetic, and dermatology segments achieving growth rates as high as 11.6 per cent.
These figures highlight the rising prevalence of chronic illnesses and growing healthcare spending in India, which helped domestic formulations grow at 11 per cent year-on-year (YoY), outpacing the Indian Pharmaceutical Market’s (IPM) overall growth of 8 per cent.
Companies like Dr Reddy’s Laboratories capitalised on this momentum, leveraging their strong domestic market presence to deliver standout results. However, not all segments flourished, as ophthalmology and
respiratory therapies lagged, reflecting the diverse nature of demand in the Indian market.
The Domestic Edge: Chronic Therapies Take Center Stage
The stellar performance of chronic therapies in Q2FY2025 underscores a significant shift in India’s healthcare priorities. Sharekhan Brokerage’s latest report highlights that segments such as cardiac (+11.6 per cent), gastrointestinal (+9.8 per cent), anti-diabetic (+9.1 per cent), and dermatology (+9.5 per cent) not only led the growth but also outpaced the broader IPM. This growth is a testament to the increasing burden of chronic diseases, driven by lifestyle changes and ageing demographics, and rising healthcare awareness and expenditure.
Dr Reddy’s Laboratories emerged as a standout performer, outperforming its peers in these critical segments. According to Sharekhan's analysis, the company’s targeted investments in chronic therapies have positioned it well to capture growing demand. However, the under performance in ophthalmology and respiratory segments suggests that the domestic market’s recovery remains uneven, influenced by shifting patient priorities and evolving healthcare dynamics.
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The stellar performance of chronic therapies in Q2FY2025 underscores a significant shift in India’s healthcare priorities.
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US Generics: A Resilient Growth Engine
While chronic therapies drove domestic growth, the US generics market anchored the sector’s international performance. Sharekhan’s report notes a steady 10.2 per cent YoY growth in
the US generics space, marking the fifth consecutive quarter of robust expansion. Key drivers included reduced price erosion, successful niche launches, and enhanced product mixes.
Zydus Lifesciences led the charge in the US with a remarkable 28 per cent growth, fueled by niche launches like Mirabegron and strong volume expansion. Sun Pharma followed with a 20 per cent increase, driven by its speciality products such as Illumya and Cequa. These companies exemplify how Indian pharma has strategically shifted toward high-value generics and speciality products to sustain growth in a competitive market.
However, challenges persist. Torrent Pharma reported declining US sales due to regulatory delays and persistent pricing pressures, highlighting the risks inherent in this market.
Sharekhan emphasises the importance of regulatory agility and product diversification in mitigating such risks.
Margins on the Rise
EBITDA margins reached record highs during the quarter, a critical highlight of Sharekhan’s analysis. Stable input costs, reduced logistics expenses, and a shift toward speciality generics contributed significantly to this margin expansion. Sun Pharma and Divis Laboratories stood out, achieving 30 per cent and one per cent EBITDA margins, respectively, reflecting their operational efficiencies and focus on high-value products.
The Active Pharmaceutical Ingredients (API) segment also played a vital role, with steady pricing and increased demand bolstering profitability. Sharekhan identifies the strategic shift toward complex APIs and speciality drugs as key to sustaining margin growth in the coming quarters.
Emerging Opportunities: GLP-1 and Beyond
One of the most promising areas for future growth is the GLP-1 market, which is projected to be a $100 billion opportunity over the next decade. Sharekhan notes that Indian pharmaceutical companies are well-positioned to capitalise on this trend, leveraging their cost advantages and manufacturing capabilities. This market focused on drugs for weight management and diabetes, aligns well with the sector’s strengths in chronic therapies.
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The Active Pharmaceutical Ingredients (API) segment also played a vital role, with steady pricing and increased demand bolstering profitability. There is a strategic shift toward complex APIs and speciality drugs as key to sustaining margin growth in the coming quarters.
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Also, strong cash flows from high-margin products like g-Revlimid enable companies to pursue strategic mergers and acquisitions. Sanofi’s OTC division demerger and Biocon’s monoclonal antibodies portfolio divestment are prime examples of how firms are unlocking value to streamline operations and focus on high-growth areas.
Balancing Growth and Risks
Despite its strong performance, the pharmaceutical sector faces a range of challenges. Persistent price erosion in the US generics market remains a significant risk, particularly for companies reliant on commoditised product portfolios. Geopolitical uncertainties like the Red Sea crisis could disrupt supply chains and inflate costs. On the domestic front, including additional drugs in the National List of Essential Medicines (NLEM) potentially threatens profitability.
Sharekhan’s report highlights the need for companies to adopt innovative strategies and invest in product diversification to navigate these challenges effectively. Firms with robust pipelines, strong regulatory frameworks, and a focus on speciality products will likely emerge as long-term winners.
A Positive Outlook for Investors
Looking ahead, Sharekhan remains optimistic about the sector’s growth prospects. Chronic therapies and speciality generics are expected to drive revenue, supported by stable pricing conditions and increased healthcare spending. Companies like Sun Pharma, Dr Reddy’s, and Caplin Point Laboratories are Sharekhan’s preferred picks, offering a blend of strong fundamentals, innovative pipelines, and attractive valuations.
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Complemented by steady performance in the US generics market and expanding margins, the Indian pharmaceutical industry is well-positioned for sustained momentum.
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The report also points to reasonable valuations across the sector, with large caps trading at 18-25x FY26 EPS and mid-caps presenting compelling entry points for long-term investors. These companies offer significant upside potential for those seeking exposure to the pharmaceutical growth story. Chronic therapies took centre stage in Q2FY2025, driving robust growth in the domestic market and reaffirming the sector’s resilience. Complemented by steady performance in the US generics market and expanding margins, the Indian pharmaceutical industry is well-positioned for sustained momentum.
Sharekhan Brokerage’s insights emphasise the importance of strategic agility and innovation in navigating the challenges ahead while capitalising on emerging opportunities like the GLP-1 market. As the sector continues to evolve, its ability to balance growth with resilience ensures it remains a cornerstone of India’s economic and healthcare landscape.
