Indian Pharma Sector Poised for Double-Digit Growth in Q1FY27 Driven by Domestic Demand Surge

Indian Pharma Sector Poised for Double-Digit Growth in Q1FY27 Driven by Domestic Demand Surge​

The Indian pharmaceutical industry is preparing for a robust performance in the upcoming fiscal cycle, anchored by resilient domestic demand and a resurgence in the Contract Development and Manufacturing Organization (CDMO) segment.

A recent report by 360 ONE Capital highlights a projected 10 per cent year-on-year revenue growth for 1QFY27. This growth is expected to be spearheaded by strong domestic performance and expanding opportunities in specialized therapies like GLP-1.

Domestic Market and CDMO Segment Growth Engines​

The brokerage expects the domestic market to witness a healthy 12.7 per cent year-on-year growth, reaching Rs 272 bn. This expansion is being fueled by several key drivers including the expanding GLP-1 segment, new product launches, and a strategic shift toward complex generics.

Furthermore, improved medical representative productivity, price hikes, and the in-licensing of brands are expected to bolster the domestic front. The CDMO and Active Pharmaceutical Ingredient (API) segments are also slated for a solid 9.9 per cent growth to Rs 89 bn.

Analysts point toward an increasing volume of requests for quotations and proposals from global players as a primary catalyst for CDMO growth. Indian CDMO players are currently benefiting from a strong structural capex cycle and significant investments in differentiated capabilities such as peptides, ADCs, and highly potent APIs.

Challenges in US Business and Margin Pressures​

While domestic gains remain strong, the US business faces headwinds with a projected decline of 9.3 per cent. This contraction is attributed to a high base created by prior Revlimid-related sales.

Profitability may also face some pressure as EBITDA margins are expected to contract by 125 basis points to 24.6 per cent. This compression stems from rising freight, power, and input costs that continue to weigh on the industry's bottom line.

Impact of Quality Issues and GLP-1 Uncertainties​

The reports highlight a recent challenge involving Dr. Reddy's Laboratories, which discontinued commercial supplies of its generic semaglutide injection following an API-related quality issue. This development has impacted multiple companies linked to the rapidly expanding GLP-1 opportunity.

This specific incident involved certain batches falling out of specification during commercial scale-up. Consequently, there is increased near-term uncertainty regarding product launches and manufacturing timelines as the resumption of semaglutide manufacturing remains a key monitorable for investors.

Long-Term Outlook and Structural Recovery​

Despite immediate pressures, 360 ONE Capital notes that CRAMS and API players are positioned for structural growth. The report suggests that US-focused companies are expected to see a gradual recovery as the overall business environment stabilizes.

In the long term, the sector is expected to benefit from improved macroeconomic conditions and stronger growth prospects. Additionally, rising merger and acquisition activity is anticipated to provide further support for the pharmaceutical sector's ongoing recovery.