Indian pharmaceutical companies are expected to report healthy revenue growth in the first quarter of FY27, but margins are likely to compress as sector profitability comes under pressure. In a recent preview note, Goldman Sachs said it anticipates around 185 basis points year-on-year margin decline for the sector in the June quarter, driven primarily by an unfavourable product mix and elevated input costs.
According to the report, the domestic Indian Pharmaceutical Market (IPM) continued to show robust performance, growing about 11.6 per cent in Q1, supported by improving volume growth, healthy price increases and new product launches, including semaglutide. Pricing is estimated to have risen 5.8 per cent year-on-year, while management commentary across companies points to stronger primary sales and better underlying demand than secondary market data alone might suggest.
Despite this topline momentum, Goldman Sachs flagged headwinds on the profitability front, particularly for firms with significant exposure to the US generics market. The brokerage noted that companies no longer benefit from high-margin gRevlimid revenues and are facing higher raw material and freight costs linked to geopolitical disruptions in the Middle East, weighing on operating margins. Its latest price-erosion tracker indicates that overall US generic pricing remains relatively benign, though the injectable segment has seen a monthly increase in price pressure.
Goldman Sachs characterises the current opportunity in US generics as “tactical rather than structural”, warning that pricing pressure is likely to normalise to mid-to-high single digits over the medium term as product shortages ease and competition intensifies. The sector’s margin outlook is further complicated by the oligopsonistic nature of the US generics market, where a small number of large buyers exert significant pricing power.
For Contract Development and Manufacturing Organisations (CDMOs), the report expects FY27 to be a mixed year, with performance varying according to product approval timelines and inventory destocking cycles among global clients. Overall, while near-term revenue trends for Indian pharma remain positive, Goldman Sachs remains cautious on most names with high US generics exposure, highlighting that margin resilience not just growth will be a key differentiator for investors tracking the sector in the quarters ahead.
