The pharma sector has started FY27 on a strong note but margins of leading drugmakers are likely to come under some pressure due to high input and logistics costs, weak US generics demand and tighter regulatory scrutiny, India Ratings (Ind-Ra) said. Revenue growth for 15 pharma companies tracked by the ratings agency was in the high teens in the first quarter of FY27, aided by the acquisitions and currency benefits.

Industry sales grew 11.5% year-on-year in the quarter, supported by chronic therapies, new product launches and increasing traction in the anti-diabetic segment. This marked the fifth consecutive quarter of double-digit growth.

For the full financial year, Ind-Ra is expecting the domestic pharma market to grow around 10%. The report said that July sales growth of 12.1% pointed to a broad-based demand with support from pricing, volume expansion and new products. The agency said rising chronic disease incidence and accelerating GLP-1 adoption should support the market’s longer-term growth trajectory. GLP-1 drugs treat diabetes and obesity, and many generic versions of this therapy have been available since March this year.

US Generics Slump “The US growth is likely to remain under pressure due to the absence of gRevlimid – oral medicine used to treat specific types of blood cancers – and continued pricing headwinds. Regulatory scrutiny and oversight may delay key product approvals from impacted sites. Despite near-term cost pressures led by geopolitical issues, EBITDA (earnings before interest, taxes, depreciation and amortisation) margins should remain healthy, supported by a favourable product mix, currency factors, and pass-through mechanisms. Strong balance sheets and liquidity will continue to support inorganic growth,” said Nishith Sanghvi, director (corporate ratings) at Ind-Ra.

US generics remain a weak spot for the sector. Revenues of the 13 companies tracked by Ind-Ra declined 8% year-on-year in Q1FY27, hit by continued pricing pressure, product-specific challenges and the absence of gRevlimid sales. The US still contributes more than 35% of the sector revenue, making the slowdown a significant drag on the overall growth.

CDMO Momentum Though the contract manufacturing business, also known as CDMO (contract development and manufacturing organisation), continues to offset some of the weakness in the US generics. As per the report, the segment reported double-digit revenue growth in the first quarter, and Ind-Ra expects the momentum to continue through FY27 on the back of strong enquiry pipelines from global innovators, improving capacity utilisation and newly-commissioned capacities.

“The next growth phase will be increasingly driven by execution excellence and the successful commercialisation of past investments,” the agency said.

Besides CDMOs, active pharmaceutical ingredient (API) segment is also witnessing a volume-led recovery. Volumes and realisations improved from a year earlier, but the risk of higher raw material, freight and solvent costs persist.

However, Ind-Ra said that margins are likely to soften. Gross margins were around 70% and EBITDA margins around 23% in Q1 of FY27. Higher material and logistics costs, along with the absence of one-off gains, are expected to push margins lower. Although they should remain above historical averages.