Hospitals, CDMOs to lead pharmaceutical growth; Generics face a weak FY27, says JM Financial’s Amey Chalke

The Indian healthcare and pharmaceutical landscape is heading for a marked performance divergence, says Amey Chalke, Pharma Research Analyst at JM Financial. In an interview with ET Now, Chalke said the sector is witnessing strong traction in hospitals and CDMOs, while large generic pharma companies may face earnings pressure from FY27 onwards.

Tariff concerns are already included in the price

Chalke noted that recent tariff concerns from the Trump administration have impacted valuations of branded and specialty pharmaceutical exporters, but the profit impact is likely to be limited.

Many branded players, he said, have a manufacturing presence in the U.S., which helps mitigate tariff risks. “We remain positive on companies supplying branded products from India to the US,” he added.

Second Quarter Earnings: Hospitals and CDMOs outperform

The Indian hospital sector continued its leadership position in the second quarter, reporting revenue growth of 16 to 17% and EBITDA growth of 17 to 18%, outperforming peer pharmaceutical companies that posted revenue growth of 11 to 12%.
Chalke reaffirmed his pecking order:

1. Hospitals
2. CDMO (Contract Development & Manufacturing) players.
3. Generic pharmaceutical companies

Both hospitals and CDMOs are expected to achieve an EBITDA CAGR of 20% over the next two to three years, he said.

China+1: A structural tailwind for Indian CDMOs

Chalke dismisses concerns about the sustainability of the China+1 opportunity, saying the trend is structural and not cyclical.Indian CDMO companies, he said, are poised for a 15-20% CAGR, driven by ramping up commercial projects. Large CDMOs, he added, will benefit the most – as seen in the Chinese market, where larger players posted disproportionate growth.

Hospitals with an improving EBITDA per bed will lead

Within hospitals, he recommended focusing on companies where EBITDA per bed is improving and where the city mix is ​​shifting to higher-paying markets.

He also recommended discounted players to industry leaders.

Generics face a weak FY27 despite strong near-term numbers

While many generic pharmaceutical companies posted strong second-quarter results, Chalke warned that FY27 could be weak as key high-margin opportunities fade and competition increases.

“Short-term momentum is strong, but an earnings decline is likely after two or three quarters,” he said.

India’s global positioning remains strong despite the tariffs

Despite uncertainty over US tariffs and the BIOSECURE Act, Chalke believes India’s pharmaceutical advantage remains intact, supported by strong cost efficiencies and export capabilities.

Generic exports to the US and non-US markets will continue to grow, barring temporary product-specific disruptions such as Revlimid, he added.

From tablets to biosimilars: India is moving up the value chain

Chalke highlighted that the Indian pharmaceutical sector has already transitioned from simple oral solids to biosimilars, complex injectables and inhalers, reducing the threat from low-cost Asian competitors.

After the second quarter, changes in industry earnings estimates are small: within a range of 0% to 5%, indicating no major recalibration is needed.