Domestic formulation business for drug makers see recovery in Q2 as GST impact eases

Domestic formulation sales of Indian drug makers have bounced back in the second quarter ended September with normalisation of supply chain impacted by transition into Goods and Services Tax (GST) regime.Domestic sales of top-10 drug makers listed on stock exchanges in Q2 grew on sequential basis by 30 percent, while the growth was 13 percent on year-on-year basis indicating a strong recovery.Recovery of domestic formulation business helped many Indian drug makers to offset decline in US sales on account of pricing pressures and competition in that market.

The April-June quarter earnings received jolt as pharma distributors and retailers have resorted to de-stocking inventory on concerns over potential losses arising from mismatch between tax payout and tax refund.The domestic formulations sales declined on an average 8.8 percent in Q1FY18 led following GST implementation versus growth of 4.5 percent in Q4 FY2017 and 9.3 percent in Q3 FY2017. According to research firm AIOCD Pharmasofttech AWACS, inventory levels of drugs at stockists have dropped from average 40 days at the end of May to 17 days as on June 28. As on September the inventory days have recovered to 30 days. The October sales figure of Indian pharmaceutical market saw a jump of 6.5 percent showing after growing at just 1 percent on average in the July-September period.

Analyst expect domestic formulation sales to improve further in the second half with the worst behind.”Post implementation of GST, with inventory at near pre-GST levels, domestic business of Indian pharma companies is expected to bounce back in 2HFY18,” said Motilal Oswal.“The channel inventory levels is expected to improve during the remainder of FY2018 leading to higher primary sales though achieving pre-GST channel inventory levels remains to be seen,” said another analyst on condition of anonymity.Indian pharmaceutical market size is about Rs 1,08,452 crore at the end of October on moving annual total (MAT) basis. The market grew at 10 percent in FY17, however the growth has dropped to 3.8 percent in the first half of FY18 as per the AIOCD figures.”(The) demand prospects from domestic market are likely to remain healthy given increasing spend on healthcare along with improving access though regulatory interventions, especially relating to price control and mandatory genericisation remain a concern,” ICRA said in its latest report.

Source:http://www.moneycontrol.com/news/business/earnings-business/domestic-formulation-business-for-drug-makers-see-recovery-in-q2-as-gst-impact-eases-2441605.html

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