Whalesbook
While projected revenue growth for Indian pharmaceutical companies in Q4 FY26 appears positive, it hides a trend of falling profits. This gap between growing sales and shrinking earnings signals underlying pressures from increased competition and major patent expirations, especially for gRevlimid.
Revlimid Patent Expiry Hits Profits
The sector is facing a key moment as gRevlimid's patent protection ends in January 2026. ICICI Securities forecasts this event will lead to a 2.4% drop in operating profit (Ebitda) and a 13.3% decline in net profit (PAT) year-on-year. Companies heavily dependent on this major drug, such as Dr. Reddy's Laboratories, Zydus Lifesciences, and Cipla, are expected to see sharp drops in performance. Dr. Reddy's Laboratories, for example, faces direct revenue loss from its oncology segment. Investors have reacted with mixed signals, causing stock price volatility as they factor in lower revenue streams and the costs of offsetting these losses by developing new drugs and entering new markets.
Growth Drivers: Domestic Market & Diversification
Despite industry challenges, ICICI Securities points to specific companies likely to remain strong and grow. Lupin is expected to report solid results by using its varied product range and strong presence in key markets. Companies strongly focused on the domestic Indian market, like Torrent Pharmaceuticals, are set to benefit significantly from growth through acquisitions. Torrent's purchase of JB Chemicals & Pharmaceuticals is expected to boost its market share and product range. Alkem Laboratories, also an India-focused company, is predicted to have a strong quarter, supported by its growing treatment areas and strong sales team. New product launches are seen as a main driver for Gland Pharma, suggesting decent growth despite rising competition in injectables. However, companies focused on innovation that develop and manufacture drugs for others (CDMOs) such as Divi's Laboratories and Piramal Pharma, face a slower outlook. Their project revenue can be unpredictable due to development phases and changes in customer R&D budgets.
Risks and Valuations to Watch
Although ICICI Securities has named top stock picks including Sun Pharmaceutical Industries, Aurobindo Pharma, Alkem Laboratories, Gland Pharma, OneSource, Piramal Pharma, and Akums Drugs & Pharmaceuticals, risks need careful consideration. The sector's predicted 7.2% revenue growth seems modest compared to expected profit drops, suggesting margins might tighten more than ICICI estimates. For companies like Dr. Reddy's and Cipla, successfully moving past gRevlimid revenue loss depends on quickly launching profitable new drugs, a process involving regulatory challenges and tough competition. Rivals such as Sun Pharma, with its wide range of specialized drugs in development, and Aurobindo Pharma, which is expanding into similar biological drugs (biosimilars), could offer steadier growth paths. Stock valuations for many firms remain high, with large companies trading at P/E ratios between 20x and 30x, leaving little room for error if growth targets are missed. Additionally, the Indian pharmaceutical sector as a whole faces changing exchange rates and ongoing high costs for raw materials, which could further reduce profits soon. Technical indicators (RSI) for most stocks are neutral (45-60), suggesting no strong immediate momentum to absorb earnings disappointments.
Analyst Views and Future Growth
Looking ahead, the Indian pharmaceutical industry is focusing on specialty products and biosimilars to counter the effect of patents expiring on established generics. Analysts are cautiously optimistic, with some reports suggesting potential upgrades for companies showing good progress in drug trials or successful market entry in new treatment areas. The sector's direction is shaped by changing global healthcare needs and domestic demand. Despite current Q4 FY26 challenges, long-term growth relies on innovation and better healthcare access in India and emerging markets.