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Why capex of top 20 Indian pharma firms is set to jump 40%

Out of this lot of 20, the capex spending of 8 companies – which currently generate a majority of revenues domestically – will almost double by fiscal 2018, growing at a much faster pace compared with the rest that are already focused on the regulated markets, says Crisil.

The News International Team

The capital expenditure (capex) of India’s top 20 pharmaceutical companies is likely to increase 40 percent to over Rs 50,000 crore till fiscal 2018 on sharper global focus, says a report by Crisil.

According to the research firm, drug makers sharper focus on regulated markets is one of the key reasons for the capex rise. To tab regulated markets like the USA, company’s will have to pump more funds to meet their stringent standards. FDA scrutiny of Indian manufacturing plants has been increasing of late, so companies will have to invest in upgrading facilities proactively to enjoy uninterrupted benefits from the opportunities coming up, it adds.

Apart from that, research spending will also rise because companies will need FDA approval to be able to sell their generic medicines in the regulated markets. Also, investments to build FDA-approved manufacturing facilities and processes will rise, says the report.

In the last four fiscals, the capex of these top players has risen to Rs 36,000 crore. 

However, despite the increase in capex, credit quality of these pharma companies is expected to remain stable, the report adds.

Crisil expects Indian drug makers to continue to benefit from low debt and steady cash flows, which will mitigate or offset any potential impact of large capital spending on balance sheets.

Sun Pharma stock price

On August 13, 2014, at 15:54 hrs Sun Pharmaceutical Industries was quoting at Rs 800.25, up Rs 16.35, or 2.09 percent. The 52-week high of the share was Rs 803.70 and the 52-week low was Rs 475.60.

The company’s trailing 12-month (TTM) EPS was at Rs 1.45 per share as per the quarter ended March 2014. The stock’s price-to-earnings (P/E) ratio was 551.9. The latest book value of the company is Rs 41.64 per share. At current value, the price-to-book value of the company is 19.22.


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