India’s healthcare industry comprises hospitals, medical devices and equipment, health insurance, clinical trials, telemedicine, and medical tourism. These market segments are expected to diversify as an ageing population with a growing middle class increasingly favours preventative healthcare. Moreover, the rising proportion of lifestyle diseases caused by high cholesterol, high blood pressure, obesity, poor diet, and alcohol consumption in urban areas is boosting demand for specialised care services.
The hospital industry in India is witnessing huge demand from both global and domestic investors. The Government’s plans to increase budgetary allocation for public health spending to 2.5% of the country’s GDP by 2025, will benefit the hospital sector as well.
Government policies to boost growth healthcare
On the policy front, the Indian Government is undertaking deep structural and sustained reforms to strengthen the healthcare sector; it has also announced conducive policies for encouraging Foreign Direct Investment (FDI). In fact, India’s FDI regime has been liberalised extensively.
Currently, FDI is permitted up to 100% under the automatic route (i.e., the non-resident investor or Indian company does not require approval from the Government of India for the investment) in the hospital sector and in the manufacture of medical devices. In the pharmaceutical sector, FDI is permitted up to 100% in greenfield projects and 74% in brownfield projects under the automatic route. Many Indian listed companies have done brownfield as well as greenfield CAPEX in the past few years.
With respect to pharmaceuticals, India can boost domestic manufacturing, supported by recent Government schemes with performance-linked incentives, as part of the Atma Nirbhar Bharat (Self-Reliant India) initiative.
Further, between 2018 and 2024, patents worth USD 251 Billion are expected to expire globally, presenting a lucrative opportunity for the country’s pharmaceutical sector, including the patent market. In addition to generic drugs, there are investment opportunities in other segments of India’s pharmaceutical sector, including over-the-counter drugs, vaccines and contract manufacturing and research.
CDMO’s and CRAMS
Pharmaceutical companies are increasingly focusing on their core competencies. For the big pharma players, it is about balancing their fixed and variable costs while optimising resource utilisation. For the small and medium players, it is about accessing scale, experience, and infrastructure that they do not have nor want to build in-house.
Pharmaceutical companies are on the lookout for innovative solutions to enhance their drug development and manufacturing process. CDMOs and Contract Research Organisations (CROs) are merging to provide one-stop solutions to pharma companies. These include drug discovery, formulation, and commercialization across the entire industry value chain. The external assistance and consolidation will surge the growth of the global CDMO market.
The rapid boom in the services of the CDMO market will positively impact the industry. Clinical trials and research activities are risky endeavours for pharma companies. In addition to it, overall operational costs are escalated. CDMOs offer their specialised knowledge expediting the innovation and formulation stage. This leads to an agile manufacturing process and timely delivery to patients. The risks are shared, and costs reduced owing to no additional investment in capacity, equipment, and labour.
Increase in Investments
Investments in the global pharmaceuticals sector to increase to over $1,400 billion over the next 3 years, driven by several new medicines. With healthy R&D spending going forward, the Contract Research and Manufacturing (CRAMS) segment offers growth opportunities to Indian companies.
Rising demand for generic formulations, increased investments in pharmaceutical Research & Development and advanced manufacturing technologies by contract development and manufacturing organisation (CDMO’s) are key factors contributing to the high CAGR of Pharmaceutical Contract Manufacturing market.
The Indian chemical industry is one of the fastest-growing industries in the world. Currently, it ranks 3rd in Asia and is the 6th largest market in the world with respect to output, after the US, China, Germany, Japan and South Korea. The industry's growth is mainly driven by consumption growth and export opportunity.
Demand for speciality chemicals is owing to their performance-enhancing applications instead of composition. Businesses operating in this sector require deep knowledge and the ability to bring about consistent innovations. The speciality chemicals industry is a mature sector with proven benefits accruing to a wide range of end-use customers. It comprises about 17% of the global chemicals market and is expected to grow at an average of 5.3% between 2019 and 2024, picking up pace on the back of emerging usage applications in a variety of industrial sectors.
In addition to the industry’s historic growth trajectory, the Government has taken progressive steps, such as the economic stimulus package, Production Linked Incentive (PLI) Scheme, tax and labour reforms, setting up of the National Infrastructure Pipeline (NIP) and various chemical industry-specific policies and schemes, including its public procurement policy, mandatory BIS standards, skill development programs and renewal of the PCPIR policy.
Production Linked Incentive Scheme for the manufacturing sector The objective of the PLI Scheme
1. Competitive & efficient domestic manufacturing.
2. Attract investment in core sectors & cutting-edge technologies.
3. Make India part of the global supply chains.
4. Enable economies of scale and exports.
Impact and benefits of the scheme
• The minimum production in the country as the outcome of the PLI scheme stands to be around USD 56 billion in the next 5 years.
• Cashback and incentives between 2% and 20% of the incremental sales revenue (over the base year) and incremental exports revenue depending on the sector.
• Potential to create ~14 million man-months’ worth of jobs directly from 2021-22.
What makes an Indian specialty chemicals company scalable?
There are three lenses through which investors should view this sector:
(1) Differentiation of process capabilities,
(2) Asset discipline (return on capital, return on carbon),
(3) Client engagement (trust, transparency).
The Indian specialty chemical sector has grown at 12% or more in the last five years and is well poised to expand its global market share to 7-8% from 4% in the coming years. The structural drivers are in place like global best practice manufacturing standard and R&D capability along with government impetus of make in India policy with pro-growth policies will act as a further catalyst for growth.
Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar