Whalesbook
Margin Pressure Continues
The sector's margin squeeze is driven by several key factors outlined in HDFC Securities' research. Pharmaceutical companies expect their EBITDA margins to shrink by about 110 basis points compared to the previous year. This pressure comes from rising input costs, significant price drops in the important US market, and the loss of sales from high-margin drug gRevlimid.
Challenges in the US Market
The US generics market is seeing a sequential slowdown. This is made worse by pricing difficulties on existing products and the loss of gRevlimid revenue. While drugs like gJynarque and gSpiriva show potential, they are not enough to counter general market pressures. The report forecasts a 5% drop in US formulation sales for the pharma segment quarter-over-quarter.
Domestic Business Shines
In contrast, India's domestic business is a strong performer, expected to grow 15% year-on-year. This growth is supported by the specialty drug portfolio and steady demand for chronic medications. Overall, the Indian pharma market saw stable growth of 12% in January/February 2026.
Performance Across Segments
Hospitals are predicted to achieve 15% year-on-year growth, thanks to higher occupancy rates and new bed additions. Diagnostics are also set for similar sales growth with moderate improvements in profit margins. Retail pharmacy chains, including Medplus and Apollo HealthCo, are expected to see significant growth of 22% and 20% year-on-year, respectively. The Contract Research, Development, and Manufacturing Organisation (CRDO) segment is likely to maintain its margins as new production facilities become operational. However, hospitals may face margin challenges due to a smaller share of international patient revenue and costs tied to expanding bed capacity.