Indian Pharma Outlook For 2025: Jefferies Bullish On Domestic Formulations Over US Generics

As the Indian pharmaceutical sector enters 2025, Jefferies analysts are advising investors to focus on domestic formulations rather than US generics, highlighting a potential shift in the market dynamics.

In 2024, NSE Pharma Index delivered 39% returns, outperforming the Nifty by 30%. Jefferies sees more consistent growth prospects in domestic businesses, especially in the wake of price hikes and favourable raw material costs.

The Indian pharmaceutical market faced a slowdown in 2024, with growth coming at 7% year-to-date. This was primarily due to a lack of price hikes on National List of Essential Medicines products and a regulatory ban on 156 fixed-dose combination drugs. However, Jefferies expects recovery, starting April 2025, as price hikes will be introduced for a wider range of drugs. Additionally, with oil prices remaining low in the second half of 2024, inflation on basic raw materials is expected to remain subdued, boosting margins for domestic pharma companies.

Key stocks recommended by Jefferies for 2025 include Mankind Pharma Ltd., JB Chemicals and Pharmaceuticals Ltd., and Sun Pharmaceutical Industries Ltd., all of which are expected to benefit from these trends. Mankind and JB Pharma are especially favoured due to their strong domestic portfolios and higher potential for margin expansion.

Meanwhile, the US generics sector is predicted to face volatility, particularly for companies heavily reliant on sales from the blockbuster drug Revlimid. The patent settlement for generics manufacturers will last until January 2026, but most firms are expected to book significant sales in the first half of 2025, with a potential slowdown later in the year. As a result, Jefferies cautions that companies with higher exposure to Revlimid sales could see a decline in earnings in the second half of 2025.

Biocon, which has struggled with growth in recent years, saw its stock upgraded to a 'hold' from 'underperform', due to positive developments around its Bengaluru biologics plant, and the expected February 2025 launch of its biosimilar version of Stelara.

For the upcoming year, Jefferies recommends a more cautious approach to US-focused generics, favouring companies with a stronger domestic presence or more predictable business models. Sun Pharma remains a top pick among export-oriented companies, while Zydus is also seen as having strong potential due to its promising US pipeline.

With an eye on long-term growth, Jefferies analysts have rolled out their price targets for covered companies to March 2027, emphasising the importance of strategic shifts and market conditions in shaping the sector’s performance in 2025.