Driven by rising exports and stronger domestic demand, India’s pharmaceutical sector is projected to see revenue growth accelerate to 11–13% this fiscal year, up from 8% previously. However, this top-line surge will not entirely translate into higher profits, as escalating raw material, energy, and logistics costs are anticipated to shrink operating margins by 150–200 basis points.

The pharmaceutical sector’s credit profiles are expected to remain resilient, backed by robust cash flow, solid liquidity, and healthy balance sheets.

This outlook is supported by a financial analysis of nearly 190 drugmakers, which together represent roughly half of the industry's revenue from the previous fiscal year.

Driven primarily by generics, the industry generates even revenue from domestic and international markets. Formulations comprise 83% of export volumes, with 57% heading to regulated destinations and the rest to semi-regulated regions. This varied geographic footprint is accelerating sector growth.

Says Sehul Bhatt, Director, Crisil Intelligence, “Export growth is broadening beyond the US. Complex generics and biosimilars are expected to deepen the sector’s presence in Europe, while branded generics and new launches will accelerate growth across Asia, Africa and Latin America. In the US, differentiated product launches and inventory normalisation should partly offset continuing pricing pressure. This broader market and product mix will be the principal driver of export growth, which is projected at 14-16% in rupee terms this fiscal.”

Domestic sales are set to act as a powerful secondary growth engine, projected to expand by 9–11% this fiscal year alongside rising exports. The primary driver remains chronic therapies, fueled by the increasing prevalence of lifestyle-related conditions. This market expansion is supported by 5–6% annual price hikes and a notable recovery in volume growth to 4–5%—up from approximately 2% over the last two fiscal years. This volume rebound will be propelled by new product rollouts, robust prescription demand, enhanced sales-force efficiency, and broader expansion into Tier-2 and Tier-3 cities.

Says Aditya Jhaver, Director, Crisil Ratings, “The sector’s growth momentum is strengthening, but earnings will face a cost test this fiscal, with operating margins expected to moderate by 150-200 basis points to 21.0-21.5%. Higher energy, freight and feedstock costs amid geopolitical volatility in West Asia will outweigh near-term gains from rising operating leverage and a richer product mix. Nevertheless, robust balance sheets and sizeable liquidity buffers give companies the headroom to absorb this margin moderation without weakening credit profiles.”

That financial cushion is reflected in healthy credit metrics. Debt-to-EBITDA3 for Crisil-rated companies is expected to remain around 1.2 times, while interest coverage should stay close to 10 times this fiscal despite margin moderation.