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Indian active pharmaceutical ingredients (API) industry is set to grow 7-8 per cent in FY25, from an estimated size of $13-$14 billion in 2023, a report said on Monday. 

The growth will be driven by a steady ramp-up in the pharmaceutical formulations industry which, in turn, will be aided by an increasing geriatric population, higher prevalence of chronic diseases, and rising demand for contract manufacturing with global customers looking to diversify their supply chain along with greater focus on domestic sourcing, according to the report by credit rating firm ICRA.

“Given the lower input costs, along with growth in revenues, ICRA expects the earnings improvement recorded in FY2024 to sustain in FY2025 and the operating profit margin (OPM) to enhance to 12-14 per cent from 11-13 per cent in the previous fiscal,” said Deepak Jotwani, Vice President and Sector Head–Corporate Ratings, ICRA.

However, the impact of subdued demand from some key export markets such as Europe and tensions in the Red Sea impacting supply chain and freight costs will continue to be monitored, he added.

India imported APIs and bulk drugs worth Rs 377 billion in FY2024, accounting for 35 per cent of its total API requirement.

The country has witnessed favourable traction in the production-linked incentive (PLI) scheme launched by the government for the bulk drugs industry.

The scheme particularly focuses on select molecules such as Penicillin G and 7-ACA, which require sizeable investments and involve high-energy consumption during the manufacturing process.

“As of now, 62 per cent of the originally envisaged investment of Rs 6,500 crore has been made in 32 commissioned projects out of a total of 48 envisaged projects. One of the key products approved under the scheme is penicillin-G,” said Jotwani.

A leading Indian API manufacturer is likely to commission its penicillin-G manufacturing facility under the PLI scheme in FY2025, helping reduce India’s dependence on China for this bulk drug.

Domestic manufacturing will also help formulations manufacturers reduce their inventory carrying cost through efficient supply chain management, said the report.

With the completion of capacity expansion by most companies in ICRA’s sample set, the capex is expected to moderate to Rs 5.6 billion in FY2025 from an estimated Rs 7.6 billion in FY2024, it added.