MANAGEMENT DISCUSSION AND ANALYSIS
INDUSTRY STRUCTURE AND DEVELOPMENT
The Company is engaged in service segment. The primary activities are contractmanufacturing and renting of immovable property. The property portfolio, although anon-core activity, generates substantial income.
The Company provides contract manufacturing service for nutraceutical and milk-basedproducts. Contract manufacturing in India is growing rapidly catering to both domestic andinternational pharmaceutical companies.
OUTLOOK ON OPPORTUNITIES
The contract services market in India is set to register 33-34% growth on yearly basisand likely to attain US$ 6 billion by the end of 2013 from US$ 900 million in 2007(Source: F & S report). Of this Contract manufacturing represents 71% share. In this,work is sub-contracted to a manufacturer by a company that owns the product design andIPR. In some cases, the manufacturer takes the responsibility of marketing the productsusing the vendor's brand and provides after-sales support. The Indian nutraceutical marketis expected to grow at approximately 21%. Nutraceuticals in India are considered drugs,unlike the over-the-counter status they have in western countries, The Infant formulae andfollow-on segment, Weaning Cereals and Protein Supplements market are expanding rapidly.Increasing awareness and rising disposable incomes is leading growth of this market.
The need of the industry is to have an empowered body that will enforce strictregulations on companies but allow them to bypass the medical channels. Currently, Pharmacompanies have to approach doctors to promote their products. Industry sources also feelthat OTC status might be better to boost the segment rather than a drug status, as peopleassociate drugs with curative measures rather than preventive ones.
The manufacturing unit at Lalru has been established for more than ten years now and itis necessary to make additional investment in the said facility for expansion andupgradation. Considering that the margins in the contract manufacturing business are notexpanding, management is exploring various options regarding the business.
OUTLOOK ON THREATS, RISKS AND CONCERNS
The Company does not foresee any commercial or other threats, which could disrupt theoperations of its business and its manufacturing facility.
The Company operates in service segment. For the year ended March 31, 2011, income fromcontract manufacturing amounted to Rs. 147,699 thousand and income from renting ofimmovable property amounted to Rs. 52,034 thousand.
INTERNAL CONTROL SYSTEMS AND ADEQUACY
The Company has set up internal control procedures commensurate with its size andnature of the business. These business procedures ensure optimum use and protection of theresources and compliance with the policies, procedures and statutes. The internal controlsystems provide for well-defined policies, guidelines, authorizations and approvalprocedures. The prime objective of such audits is to test the adequacy and effectivenessof the internal controls laid down by management and to suggest improvements.
The income from sales and services for the year ended March 31, 2011 amounted to Rs.206,671 thousand as against Rs. 240,772 thousand in previous year. The total income forthe year ended March 31, 2011 amounted to Rs. 611,909 thousand as compared to Rs.1,102,458 thousand in previous year. The said reduction in total income was due toreduction of interest income and rent income.
During the year ended March 31, 2011, total expenditure reduced from Rs. 229,101thousand to Rs. 758,101 thousand due to substantial reduction of interest expenses fromRs. 552,954 thousand to Rs. 29,738 thousand.
Due to reduction of total expenditure, the profit before tax and exceptional items forthe year ended March 31, 2011 is Rs. 382,808 thousand, as compared to Rs. 344,357 thousandin previous year, thereby recording growth of 11%. However, the profit after tax for theyear ended March 31, 2011 reduced from Rs. 676,089 thousand to Rs. 223,006 thousand. Thiswas due to the net exceptional income of Rs. 579,007 thousand earned by the Company forthe year ended March 31, 2010 which mainly comprised of profit on sale of commercialpremises.
The Company has 100 employees. Through various interventions like training anddevelopment, self learning initiatives, communication channels, cross-functionalinterventions for nurturing creativity and multi-rate feedback, there has been acontinuous effort to build and enhance competencies of employees at every level of theorganization.