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Coverage Companies Deliver Healthy Growth; Margin Pressure Largely Transitory

Companies under our coverage delivered a healthy revenue growth during the quarter, with average revenue increasing 9.9% YoY. Growth was primarily driven by new product launches, scale-up of existing portfolios and continued outperformance in the domestic market. The quarter also marked a wave of Semaglutide launch in India, further supporting growth. While the US business maintained its growth trajectory, emerging markets continued to deliver robust performance driven by geographic expansion and new product introductions. Key outperformers included SENORES (+53.4% YoY) and SUPRIYA (+50.2% YoY).

EBITDA performance was impacted by select company-specific factors, resulting in an average margin contraction of 88 bps YoY. The decline was largely attributable to one-off expenses at DRRD (-1,079bps YoY), while CIPLA (-761 bps YoY) and CONCORDB (-795 bps YoY) faced company-specific operational challenges. We believe the margin pressure is largely temporary and continue to expect gradual margin expansion across the sector, supported by an improving mix of specialty and complex products and operating leverage from recent launches and acquisitions.

Generics: Launch Momentum to Offset Pricing Headwinds

Pricing pressure in the US generics market has largely stabilised and we expect growth to be increasingly driven by the pace of product launches rather than pricing. We also do not anticipate any meaningful impact from the ongoing West Asia crisis, given the nondiscretionary nature of pharmaceutical demand. Key upcoming launches across our coverage universe include Tolvaptan, Fluticasone, complex injectables and select 505(b)(2) opportunities.

Peptides & Biosimilars Emerging as the Next Major Growth Engine

India witnessed a wave launch of Semaglutide immediately following patent expiry, with participation from DRRD, SUNP, GNP, ZYDUSLIF and ALKEM. We expect GLP-1 therapies to remain a meaningful growth driver, with launches now expanding into international markets including Brazil and Canada.

Biosimilars are also positioned to drive the next phase of industry growth as several biologics approach patent expiry over the medium term. Key products under development and planned launches include Abatacept, Ranibizumab, Nivolumab and Pegfilgrastim.

CDMO Growth Reinforced by Strong Order Books

The CDMO segment continues to benefit from rising outsourcing demand from global pharmaceutical and biotech companies. We expect growth momentum to remain strong, supported by increasing biologics funding, a growing pipeline of biosimilar opportunities and rising peptide demand. Companies within our coverage that are expanding their CDMO presence include LAURUS, GRAN, SENORES, SUPRIYA, ALKEM, DIVI and DRRD. We expect order books across the sector to remain healthy, providing strong medium-term revenue visibility

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