Indian pharma sector: Mergers & acquisitions, private equity activity to boom in coming years, says expert 

"...The other two spaces where I feel M&A could be hot would be hospitals... We also may see some inorganic activity happening in diagnostics," he said, further emphasising that several companies in the unbranded sector are family-operated, presenting unique opportunities for potential investors.

"...wherever companies are owned by families and the families want to scale up the business, it is easier to go the inorganic route — they already have a lot of cash flow from the branded franchise, and that can be used. So I feel that in the unbranded space, you might see some PE or strategic investments, but in the branded space, you will see more strategic investments than PE," he added.

The growth and success of these sectors are heavily reliant on government policies, especially in regulated industries.

India's pharmaceutical industry is already renowned globally, often referred to as the world's pharmacy. Khemka believes that with the government's support and encouragement, the industry can further expand and flourish, opening doors to numerous possibilities for growth and development.

The Production-Linked Incentive (PLI) scheme is seen as a positive step in the right direction, but Khemka said, "PLI came only in a couple of pockets, which is API and a few formulations, but a larger PLI scheme or a larger incentive structure like that could obviously help the industry to scale up much faster."

The recent Grant Thornton Bharat Report supports Khemka's insights, showcasing an 85 percent increase in overall deal values in the first half of the year, compared to the January-June period last year.

In the second quarter of 2023, M&A activity saw a 60 percent increase in deal volumes over Q2 2022, recording 16 deals. Value surged 97 percent to reach $487 million, resulting in an average ticket size of $30 million, compared to $25 million in Q2 2022. For H1 2023, the M&A volumes saw an increase of 47 percent as compared to H1 2022, with a total of 25 deals, with values of $628 million.

In the Private Equity landscape, despite a slight decline in deal volumes, the sectors' investment potential remains promising due to favourable demographics, government support, and India's manufacturing capabilities.

PE activity recorded a 158 percent growth in deal value, raising the average ticket size from $32 million in Q2 2022 to $139 million in Q2 2023. While H1 2023 saw a decline in deal volumes from 72 to 49 as compared to H1 2022, values soared 110 percent with values totalling $3.8 million, led by the hospitals segment, as per the report.

The surge in investments reflects the growing demand for quality healthcare services, driven by factors such as an aging population, higher disposable income, and increased health awareness. The resilience of the industry and favourable government initiatives continue to attract investors, solidifying India's position as a promising destination for healthcare and life sciences investments.