This report profiles India’s pharmaceutical and health care sector and reviews current trends and market outlook as of H2 2013. It also reviews the leading sectoral players including Dr Reddy’s, Cipla, and Lupin, and the sector’s position vis-à-vis competitors in South America, China, Japan, and the United States.

Over the last decade, India’s pharmaceutical and health care sector has made great strides. The Indian pharmaceutical sector has reached new heights as the world’s most cost-effective generic drugs manufacturer. Many Indian pharmaceutical companies have maintained the highest standards in purity, stability, and international safety; in health and environmental protection during the production process; and in the supply of bulk drugs. Competing fiercely with other emerging markets such as Brazil and China, India has carved a niche for itself in becoming one of the leading generic pharmaceutical manufacturers in the world.

The Indian pharmaceutical and health care sector witnessed a challenging period in 2013. The domestic pharmaceutical market grew by 9% in 2013, having grown by 12% in 2012. The notification of Drug Prices Control Order (DPCO)-2013 brought a relief to the buyers of essential medicines. However, the order negatively affected the incomes of drug manufacturers as well as the margins of stockists, distributors, and retailers all over India. This led to a rift between the manufacturers and retailers on the issue of margins. The year also saw import warnings and a ban against the factories of two major manufacturers—Wockhardt and Ranbaxy—by the United States’ FDA. Both manufacturers witnessed a plunge in their stock prices as a result of FDA action.

Going forward, a revival is expected in the sector backed by government support and various macro growth drivers including the rise in per capita income and health insurance penetration, the proliferation of health care services across the remote areas, an increase in lifestyle diseases, the increasing preference for India as a cost-effective production center, and the increase in foreign investments and in government as well as private expenditure on health. However, frequent policy changes and the rising prices of raw materials may act as deterrents of growth for this sector.

Key Points:

• This report discusses the market position and financial highlights for three leading players in the industry—Dr Reddy’s Laboratories Limited (Dr Reddy’s), Cipla Limited (Cipla), and Lupin Limited (Lupin). The latter has manufacturing facilities across both India and Japan.

• The sector competes fiercely with companies from South America, principally Brazil, and China. The United States received 31% of total exports from India in 2013.

• Health care has become the preferred choice for foreign investors in the last few years. In the first half of 2013, the sector registered 25 deals with a value of USD 352mn. The sector was second only to the technology sector in terms of deals made in 2012.

• The pharmaceutical sector contributed 28% to the health care industry as of FY13. The sector grew at a CAGR of 10% during 2006–13. The sector mainly comprises two business segments—domestic market and exports. Pharmaceutical exports accounted for 43% of the total size of the sector in 2013. Hence, pharmaceuticals was one of the sectors of the economy which helped in containing the country’s trade deficit and added to its foreign exchange reserves.