India's top 20 pharmaceutical companies would increase capital expenditure by 40 per cent to more than Rs 50,000 crore by fiscal 2018!

India’s top 20 pharmaceutical companies would increase capital expenditure by 40 per cent to more than Rs 50,000 crore by fiscal 2018, credit rating agency CRISIL said today.

Capex increase is because drug makers are expected to pay greater attention to regulated markets, especially the US market, to take advantage of substantial patent expiries expected in the medium term, as well as an ever increasing demand for generics. Regulated markets require higher investments to meet stringent standards, it added.

“CRISIL expects the capital expenditure (capex) of India’s top 20 pharmaceutical companies, which contribute nearly two-thirds of the country’s exports, to increase 40 per cent to over Rs 50,000 crore till fiscal 2018, compared with about Rs 36,000 crore seen in the last four fiscals,” a CRISIL statement said.

Out of the top 20 pharma companies, capex spending of eight companies, which currently generate a majority of revenues domestically, would almost double by fiscal 2018, growing at a much faster pace compared to the rest which are already focussed on regulated markets.

“Increasing domestic pressures will force Indian companies to seek greener pastures abroad. This will lead to higher expenditure related to compliance, research and manufacturing capacities. We see their capex rising around 200 basis points to nearly eight per cent of operating income by fiscal 2018 from six per cent now,” CRISIL’s President Ratings (Large Corporates) Ramraj Pai said.

Three factors would drive capex increase. The first is the need to adhere to compliance regulations of the US Food and Drugs Administration (FDA). FDA scrutiny of Indian manufacturing plants has been increasing of late, so companies would have to invest in upgrading facilities proactively to enjoy uninterrupted benefits from opportunities.