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India's pharmaceuticals market (IPM) is expected to grow between 6 and 8 per cent on a year-on-year (YoY) basis in FY23.

Accordingly, the growth has been capped due to high base effect and inventory stocking in FY21 on account of Covid-19-led disruption in supplies of key starting materials.

Besides, API (Active Pharmaceuticals Ingredient) businesses are expected to report high single-digit growth in FY23 due to a demand uptick, the overall revenue growth is expected at 9-to-10 per cent YoY.

In a research note, India Ratings and Research (Ind-Ra) said it has maintained a neutral outlook for the Indian pharmaceutical sector for FY23.

The agency said that higher Capex in lieu of the 'Production-linked Incentives' (PLI) scheme will restrict the quantum of free cash flow generation during the year.

"Large players are adequately capitalised to make bigger investments to adjust for the ongoing fundamental shift in market opportunities," the note said.

"Cost-cutting measures remain a priority for Indian companies. However, interim disruptions such as high raw material costs and logistic expenses will put pressure on the level of free cash flow generated."

Besides, the agency said that with the significant improvement in the free cash flow generated in the near term, M&A activities will continue to provide inorganic push in FY23.

"Ind-Ra does not expect the sector's liquidity to face a major risk, despite similar maturities levels in FY23 and FY24. Large pharma companies generally have large cash balances, which typically account for 14-16 per cent of their revenue."

Furthermore, most companies have sufficient headroom under debt covenants and diversified funding sources.

"The interest coverage of large pharma players is likely to increase with scale and margin expansion."

"Ind-Ra expects large pharma companies to continue with their healthy debt-funded capex and research and development programme, given higher visibility in terms of sales growth and profitability."