PHARMA CONTINUES TO GROW IN DOUBLE DIGITS

The Indian pharmaceutical market will continue to grow in the double digits, representing a better growth opportunity than many other geographic markets, Moody's Investors Service says. However, drug companies in the country could face higher debt levels as the pharmaceutical sector grows, resulting in mergers and acquisitions, it said. "As consolidation in the industry continues globally, particularly among generic drug companies, Indian firms will increasingly look to become involved in global mergers and acquisitions. We have already seen some Indian companies increasing their pace of acquisitions," Moody's senior vice president Michael Levesque said in a report here. "Even if India's GDP growth slows or is uneven, the Indian pharmaceutical market would still represent a better growth opportunity than many other geographic markets, because of improving socioeconomic conditions and access to health care, against the backdrop of a rising prevalence of diseases such as diabetes and cardiovascular problems," Moody's vice president and senior analyst Kailash Chhaya said. While Indian firms do not face the same growth pressures as other players across the industry, they could become involved in global merger and acquisition activities; thereby pressuring their leverage from currently low levels. However, for most Indian companies, debt headroom is large as balance sheets are generally lowly leveraged. Moody's report acknowledges that as a general rule, key Indian players have maintained low financial leverage and demonstrated their aversion to risk, due to their unique structures -- when compared with global pharmaceutical firms -- of high ownership levels by founding family members, known as promoters.

Moody's sees such structures as credit positive for Indian drug companies, because the interests of creditors and promoters are frequently aligned and often lead to a more cautious risk appetite. The report acknowledges that size alone does not drive credit quality. Indian drug companies are characterised by good geographic diversity, healthier growth outlooks and more conservative financial policies than compared to large global players. Indian firms also exhibit favourable geographic mix, because of their strong presence in emerging markets like India and Russia, which will see high growth. By contrast, leading players in the mature, highly competitive US and western European markets, demonstrate much higher revenue concentration. According to Moody's, the US market represents a substantial growth opportunity for Indian drug companies, due to the rich pipelines of generic drugs awaiting approval by the US Food and Drug Administration. However, considerable event risk results from FDA manufacturing compliance standards, which have resulted in numerous warning letters for plants operated by Indian companies, it added. In addition, generic players operating in the US market will see greater exposure to legal costs, owing to new rules that will make companies responsible for drug safety labelling, Moody's said.