What are your growth expectations from the Indian pharma industry in 2022-23?

The Indian domestic formulation market grew at around 18% YOY in FY 2022 (substantially led by a low base effect in FY 2021) to reach revenues of Rs 184,500 crore.

However post-Covid the growth has been muted and we do not expect FY 2023 growth rates to be more than 8-10% as FY 2022 numbers capture higher revenue numbers of Covid sales.

Coincidentally Indian pharma exports also touched approx Rs 1.83 Lakh crore; however, it was flat in terms of growth measured on a constant exchange rate basis. We however expect exports to show a higher 12-15% growth rate this year (FY 2023)

Many home-grown drug companies benefited from the bump up due to Covid-19 treatments and with that on the wane, what’s the next trigger for their growth?

Yes, we believe that FY 2022 has been a kind of aberration in terms of growth due to Covid fillip and FY 2023 will be relatively muted. Some Indian companies would show de-growth in FY 2023 due to abnormal contributions of Covid drugs in FY 2022

In the last two years, the valuations of unlisted players in the healthcare space, be it pharma or diagnostics have risen due to anticipation of demand. Has the volatility in the market now tempered the valuations?

In the last 6 months in the diagnostics space, we have already seen a 20-30% correction in valuations both in the listed and the unlisted space. Similarly, in the pharmaceuticals space too we have seen a healthy 10-15% correction. The focus in FY 2023 for most players would be back to the international markets and ROW exports as demand still continues to be very strong from these markets

Which are the areas in the healthcare space that are attracting investor attention?

The domestic formulations space is witnessing consolidation in the last 12 months with almost half a dozen M&A deals announced. We expect more larger PEs to be attracted to attempt control deals. We will also see some select deals in the hospital space especially since platforms are being created by larger PEs

We have not seen any large PE investments in R&D in pharma unlike in the developed markets? What are the reasons for the same?

In global markets majority of the VC interest has been in biotech and NCE in traditional pharma. For all practical purposes, this space is almost non-existent in India. We do not expect this to change in the near term.

The API business in India has attracted investor funding. Will this sustain with the government introducing a PLI scheme?

The API sector has seen a three-fold increase in investments in 2021 compared with a year ago. Three private equity-led investment platforms have been created specifically targeting the API space viz., Hong Kong-based alternative investment firm PAG Asia Capital and its consortium partners CX Partners and Samara Capital; Advent International and the API platform by Carlyle Group. The acquisitions done by these platforms were the key deals in the API sector. We expect this to sustain in the near term with some growth capital deals happening

Are international players in the diagnostic and biotech space looking for opportunities to invest in India?

We believe that majority of the consolidation in the diagnostic space will continue to be driven by larger domestic players as global players have a negligible presence in India. Also, there is a substantial difference in valuations of diagnostic players in India and abroad and most global players continue to find the Indian valuations expensive.