Management Discussion and Analysis

Economic & Industry Overview

The cumulative drugs and pharmaceuticals sector has attracted foreign direct investments (FDI) worth US$ 377,310 million during April 2000 to May 2015, according to the latest data published by Department of Industrial Policy and Promotion (DIPP). The world population is expected to grow around 8 billion by 2050. Presently there has been increase in number of people having access to the healthcare. Global spending on medicine is expected to reach USD 1.2 trillion by 2016. It is also expected that in-organic investments will gain momentum in the medium-term as companies plan to create stronger presence in emerging markets and build expertise in select therapy areas. The developing markets have 65% share of the global market which is expected to reduce to 57% by

2016, whereas the Pharmerging market s share will be around 30%. Essentially more than 50% of the growth of the Global Pharma market will be driven by the Pharmerging markets because of the increased contribution to the global market and the higher growth rate compared to the developed market. Pharmaceuticals markets both domestic and international are more prone to regulatory risks apart from the regular business risks. Stringent regulatory norms like the Notification of new pricing policy is going to have a great impact on the whole industry by capping of prices of 348 essential medicines based on the arithmetic average of prices of all drugs in a particular segment with more than one per cent market share, any company changing composition of any of these drugs will need to seek a separate price approval from the regulator or empowered committee and prices will be reviewed periodically. It is estimated that around 30 per cent of the Pharma market would come under price control as compared to 17 per cent previously. The Company manages its product portfolio so as to move away, reduce and minimize the product weight age of drugs under price control.

India s pharmaceutical industry is at an advantageous position compared to other emerging countries.

The Indian pharmaceutical market is expected to grow at a compound annual growth rate (CAGR) of 14-17 per cent over 2012-16. India is now among the top five pharmaceutical emerging markets. The outlook on the Indian pharmaceutical industry remains favorable, according to a report by ICRA and Moody's.

Risks and concerns

The road ahead is challenging for the global and Indian pharmaceutical sector. The competition is expected to be more aggressive leading to price pressures. Uncertainty in global economic growth coupled with inflationary pressures is expected to impact the growth rate in India and consequently the Company s operations. Pharmaceuticals markets both domestic and international are more prone to regulatory risks apart from the regular business risks. Risk management is integral part of the company's plans, business strategies, monitoring systems and results. It takes in all organizational processes geared to early risk detection, identification and timely implementation of appropriate counter-measures. Your company constantly reviews its policies and procedures to adhere to ensure conformity to the various regulatory approvals for its manufacturing facilities.

Company Overview

The company has consciously entered Women s Healthcare segment. The company is positive on the products already launched which would augment the growth in times to come. And further your company is positive on the new products to be introduced during FY 15. In geographical terms, our focus to penetrate the market both urban and rural areas. Internationally, our focus is on expanding the revenue from registered products and applying for registration of products enabling for more revenue generation opportunities. Your company continuous to work towards optimizing the capacities of its manufacturing facilities and also on adding additional capacities aimed at the business opportunities available to its in its domain capability in line with its strategy. Your Company will try to ensure that it remains competitive in market, in costs and will try to manage the business more dynamically. The growth achieved by the company during the last few years has set the pace for future growth. We now feel that the fundamentals are in place and your company is well equipped to meet the future challenges on the strength of its state of the art infrastructure, R & D wing and Domestic Marketing division. Our expanding customer base is a great boon & motivating factor for the company. The company is in growth/expansion mode requiring further investment; your company is therefore evaluating various options to raise additional funds. We are and will be investing in building the necessary system and infrastructure required to manage our growth. We will continue to invest in our manufacturing facilities, R & D, registrations and programs to build revenue. We have acquired and expect to acquire business and technologies as and when the opportunity presents itself.

The company plans to improve EBIDTA margins by following modes:

• Focus on increasing revenue from contract manufacturing in regulated markets.

• Increase volume from existing emerging markets & further increase revenue by introducing new products.

• Expand to new geographies.

• Focus on FR&D for launching new products.

• Focus on export in Africa, UK and CIS Countries.

Bafna Pharma s Global footprint

S.NO NAME OF COUNTRY NO OF APPROVALS NO .OF APPLICATIONS PENDING FOR REGISTRATION
1 Sri Lanka 79 49
2 Nepal 16 3
3 Myanmar 2 1
4 Nigeria 21 27
5 Lebanon - 8
6 Uzbekistan 8 2
7 Vietnam 3 7
8 Ghana 16 4
9 Kryghistan 4 -
10 Georgia 2 -
11 Philippines 12 17
13 Lebanon - 8
14 Yemen 3 -
15 Columbia 1 6
16 Venezuela - 1
17 Peru - 5
18 Costa Rica 2 1
19 Hounduras 3 -
20 Ukraine 12 19
21 Dominican Republic - 15
22 Russia - 5
23 Brunei - 4
24 UAE - 3
25 UK 21 13
26 Dominican republic - 15
27 Tanzania - 10
TOTAL 188 196

Performance and operations review

In view of the strategic decision by Bafna Pharma is an aim to increase the revenue growth in the years to come.

Consolidated Operating Results

The consolidated sales and operating income decreased to Rs.143.68 Cr from Rs. 187.19 Cr in the previous year and decline in growth rate of 23.24%. The consolidated operating profit for the year was Rs. 14.89 Cr as against Rs. 11.49 Cr in the previous year. The consolidated net profit for the year is Rs .6.18 Cr as against FY 2014 of Rs. 1.40 Cr.

Standalone Operating Results

The sales and operating income increased to Rs. 143.66 Cr from Rs. 178.94 in the previous year decline a growth rate of 19.72%. The operating profit for the year under review is Rs. 14.00 Cr as against Rs. 10.55 Cr in the previous year. The profit after tax for the year under review is Rs. 6.10 Cr as against Rs. 1.34 Cr in the previous year.

Internal Control Systems and their Adequacy

The company has reasonable internal control system, commensurate with the size and spread, with defined guidelines on compliance, which enables it to run its factories and office with a fair degree of comfort.

Internal Audit is being undertaken by independent Auditor Mr. Gaurav Jain, Chartered Accountant, Chennai.

Internal controls are implemented to safeguard its assets, to keep constant check on cost structure, to provide adequate financial and accounting controls and implement accounting standards. The system incorporates continuous monitoring, routine reporting, checks and balances, purchase policies, authorization and delegation procedures and audit etc. Internal controls are adequately supported by Internal Audit and periodic review by the management. The Audit Committee meets periodically to review with the management, statutory auditors and with the internal auditors, adequacy / scope of internal audit function, significant findings and follow up thereon and findings of any abnormal nature. The system is improved and modified continuously to meet with changes in business condition, statutory and accounting requirements.

Material Development in Human Resources / Industrial Relations Front

The number of employees as on 31st March, 2015 was 251 as against 677 during FY 14, a net decrease of 426 employees on account of sale of Raricap division. The growth attained by the Company is largely a function of the competence and quality of its human resources. The work environment is very challenging and performance-oriented, recognizing employee potentials together with providing them adequate opportunities. We have made efforts to discipline our hiring process. Acquisition and retention of talent continues to be a major thrust area. With eye on long term, the company has begun several programmes and engages employees to enhance their knowledge / skills in line with company s goals.

On behalf of the Board of Directors
For BAFNA PHARMACEUTICALS LIMITED
(CIN L24294TN1995PLC030698)
Bafna Mahaveer Chand
(DIN: 01458211)
Date: 29.05.2015 Chairman & Managing Director
Place: Chennai