Focusing on optimising direct costs and reducing fixed costs has helped many companies report resilient margins
Focusing on optimising direct costs and reducing fixed costs has helped many companies report resilient margins

Indian pharma's sales to rise after cost cuts support margins in pandemic-hit Q1

ANI | Updated: Aug 29, 2020 16:45 IST

Mumbai (Maharashtra) [India], Aug 29 (ANI): Indian pharmaceutical companies' sales will rise after a gradual easing of the coronavirus pandemic-related lockdown measures that caused disruptions across most markets in April to June, Fitch Ratings has said.
This will underpin profitability in the quarter ending September even after normalisation in costs following cuts in Q1 that helped to support profitability despite the impact of the coronavirus.
Travel restrictions to contain the pandemic reduced the number of doctor visits and hospitals prioritised Covid-19 treatment over other elective procedures. These affected prescriptions and drug sales volume, particularly those used to treat acute medical conditions with the monthly volume drop varying from high single digits to mid-double digits across markets.
Nonetheless, resilient sales in chronic segments and active pharma ingredients (API) -- for companies with in-house manufacturing -- limited the overall impact. Focusing on optimising direct costs and reducing fixed costs, including those related to travel and sales and marketing helped many companies report resilient margins.
Fitch said some of the indirect costs like travel and marketing costs that were low due to the lockdown measures are likely to return to normal in line with the gradual easing of restrictions since May and June. Nonetheless, the gradual easing has led to a rise in doctor visits and elective procedures since May in key markets.

This will benefit sales, particularly in acute therapy areas, and support profitability in Q2, notwithstanding the uncertainty over the duration and impact of the pandemic for the rest of FY21.
Most Indian companies serve key markets globally by exporting drugs produced in India. Pharma units were allowed to operate under India's stringent lockdown measures that started from the last week of March. However, issues related to the availability of logistics and manpower affected operations, most severely in April.
Nonetheless, adequate inventory helped to cushion the sales impact in April and the gradual normalisation of operations in May helped to limit the disruption.
Sustained price erosion in the US generic pharmaceutical market continues to weigh on Indian pharma companies' profitability but most of the leading companies have an adequate pipeline of products to counterbalance this.
"We believe Indian pharma companies' focus on conserving cash by limiting capex and R&D spending in the near term will support their financial flexibility in the current environment," said Fitch.