India’s contract research, development and manufacturing organisation (CRDMO) sector is expected to record revenue growth of 13-15 per cent this fiscal after an estimated around 11 per cent growth in FY25, stated a report by Crisil Ratings. The CRDMO sector researches the chemistry of, and develops and manufactures, small molecules.
While the Crisil report maintained that the sector is expected to sustain higher operating margins of 26-28 per cent, it added that the resultant strong cashflows will enable Indian CRDMOs to continue capital expenditure (capex), with limited reliance on debt funding, and sustain their healthy credit profiles.
While the potential US tariff imposition is looming on the sector, Crisil said, factors like the criticality of the healthcare industry to the US, increasing dependence on CRDMOs for manufacturing complex intermediate and active pharmaceutical ingredients (APIs), will help the sector withstand the impact.
Crisil analysed 19 Indian CRDMOs accounting for around 50 per cent of the sector’s estimated revenue of Rs 70,000 crore last fiscal, to release the findings.
India accounts for less than 5 per cent of the global CRDMO market which is dominated by the US, Europe and China. The segment comprises contract development and manufacturing operations (CDMOs) that focus on drug development, clinical trial stage services and commercial manufacturing (accounting for 55 per cent of revenue), and contract research operations (CROs), which provide services related to drug research and discovery (accounting for 45 per cent of revenue).
Aditya Jhaver, Director, Crisil Ratings, “The domestic CRDMO sector will continue to outpace the high single-digit growth seen globally. Many US and European pharma majors are looking at alternatives to China to diversify their value and supply chains, hedge risks and ensure business continuity. India’s skills in the chemistry of small molecules, operational experience, a raft of manufacturing plants approved by the US Food and Drug Administration (USFDA), and relatively lower cost of research and development and manufacturing give it a competitive edge.”
In terms of domestic revenue, CDMO segment is expected to grow by 14-16 per cent this fiscal vs an estimated 13 per cent in fiscal 2025. This, Crisil said, will be led by new orders and increasing enquiries that highlight the growing recognition of Indian players’ development and manufacturing capabilities. Furthermore, domestic CRO revenue is projected to grow by 11-13 per cent this fiscal as against an estimated 9 per cent last fiscal. This, however, is dependent on venture capital funding, which could see delayed recovery amid geopolitical uncertainties.
Per the Crisil report, the double-digit growth in revenues, coupled with the focus on high-margin complex products, is expected to support healthy operating margins and capex plans.
Joanne Gonsalves, Associate Director, Crisil Ratings, said, “The Indian CRDMO sector will continue to expand manufacturing capacities and enhance technical capabilities, increasing its potential for growth. That said, reliance on incremental debt to remain limited, amid expectations of strong cash generation and equity support extended by private equity investors and/or equity market, with debt-to-earnings before interest, tax, depreciation and amortisation as well as interest coverage ratios remaining healthy at 1.3-1.4 times and 9-10 times respectively this fiscal.”