Pharma companies' Q1 margins likely to decline despite revenue growth: Goldman Sachs

Indian pharmaceutical companies are expected to report improved revenues in the first quarter of FY2026-27, but profitability is likely to come under pressure due to an unfavourable product mix and higher input costs, according to a report by Goldman Sachs.

In its Q1FY27 preview, the brokerage said revenues are expected to improve, but margins are likely to decline as companies no longer benefit from high-margin while facing higher raw material and freight costs arising from the Middle East conflict.

It stated, "We remain cautious on most US generic names, given the absence of high margin gRevlimid revenues as well as accounting for higher input costs/ freight charges due to the middle east conflict"


The report said it expects around 185 basis points year-on-year margin decline for the sector in the June quarter due to the weaker product mix and elevated input costs.

Goldman Sachs remains cautious on most Indian companies with significant exposure to the US generics market.

It said investors will closely track new product launches during FY27 as companies look for fresh growth drivers.

On the domestic front, the report highlighted that the Indian Pharmaceutical Market (IPM) continued to witness healthy growth during the quarter.

According to the report, the domestic pharmaceutical market grew around 11.6 per cent in Q1, supported by improving volume growth, healthy pricing and new product launches.

It said pricing increased 5.8 per cent year-on-year, while new product launches, including Semaglutide, continued to support overall market growth.

Goldman Sachs added that company managements have also indicated expectations of stronger volume growth, with primary sales data suggesting better demand than reflected in secondary market numbers.

On the US generics business, Goldman Sachs said its latest price erosion tracker indicates a relatively benign pricing environment, although it observed a monthly increase in price erosion in the injectable segment.

The report said it continues to view the current opportunity in US generics as tactical rather than structural, expecting pricing pressure to normalise to mid-to-high single digits over the medium term due to easing shortages, high product concentration and the oligopsonistic nature of the market.

For Contract Development and Manufacturing Organisations (CDMOs), Goldman Sachs expects FY27 to remain mixed because of varying product approval timelines and inventory destocking cycles.