bafna pharmaceuticals ltd Management discussions

Global overview:

FY 2023 was a good year with strong performance across multiple parameters. Despite an intensely competitive environ- ment, we saw robust top-line growth and an increase in core operating profit through our new launches and growth in existing categories. Like many other businesses, we had to navigate the challenges of operating in a volatile macroeco- nomic environment. We experienced an in crease in cost due to inflation, including higher shipping, utilities, and employee benefit costs, and volatility in the forex market. However, thanks to operating efficiencies, we were able to absorb these increases, minimize their overall impact and demonstrate the strength and resilience of our underlying business.

Recognizing the importance of emerging trends in the pharma sector, we are exited and committed to progress on our journey in two horizons. Horizon 1 continues our emphasis on ‘Growing the Core: while Horizon 2 focusses on ‘Building the Future. In other words, Horizon 2 priorities beyond the core. It includes scaling up some our existing business as well as venturing into new spaces.

INDIAN PHARMACEUTICAL OVERVIEW

The pharmaceutical industry in India was valued at an estimated US$42 billion in 2021. India is the worlds largest provider of generic medicines by volume, with a 20% share of total global pharmaceutical exports. It is also the largest vaccine supplier in the world by volume, accounting for more than 50% of all vaccines manufactured in the world. Indian pharmaceutical products are exported to various regulated markets including the US, UK, European Union and Canada.

According to Economic Survey 2023, the turnover in the domestic pharmaceutical market was estimated to be $41 billion. Indias pharmaceutical exports revenue was $25.3 billion in fiscal year 2022–23, according to the data released by Pharm- excil India ranked third globally in terms of dollar value of drugs and medicines exports.

Major pharmaceutical hubs in India are (anticlockwise from northwest):Vadodara, Ahmedabad, Ankleshwar, Vapi, Baddi, Sikkim, Kolkata, Visakhapatnam, Hyderabad, Bangalore, Chennai, Margo, Navi Mumbai, Mumbai, Pune, Aurangabad and Pithampur.

Relation between pharma and biotech

Indias biopharmaceutical industry clocked a 17% growth with revenues of Rs. 137 billion ($1.8 billion) in the 2009-10 financial year over the previous fiscal. Bio-pharma was the biggest contributor generating 60 percent of the industrys growth at Rs. 8,829 crore, followed by bio-services at Rs. 2,639 crore and bio-agri at Rs. 1,936 crore.[18] Indian companies carved a niche in both the Indian and world market with their expertise in reverse-engineering new processes for manu- facturing drugs at low costs which became the advantage for industry.

Incentives for R&D, product development and high-value production

Government of India has launched a Production Linked Incentive (PLI) Scheme for Pharmaceuticals with provision for dis- bursal of US$2 billion or ?15,000 crore government incentives, which will run from 2020–21 to 2028–29, to reduce import dependence , benefit domestic manufacturers, boost product diversification and innovation for development of complex and high-tech products especially in vitro diagnostic devices and emerging technologies especially in cell based or gene therapy, employment generation and production of wide range of lower cost affordable medicines for consumers with the aim to achieve incremental sales of US$4 billion or INR 29,400 crore and incremental exports of US$2.7 billion or INR 19,600 crore between 2022–23 to 2027–28.

Manufacture of API supplies in India

To eliminate the dependence on China after the 2017 China-India border standoff to foster an Atmanirbhar Bharat, in July 2021 Indias Council of Scientific and Industrial Research (CSIR) initiated a Make in India program in collaboration with the coal and petroleum industries of India to end-to-end manufacture 56 prioritized active pharmaceutical ingredient (API) for the essential medicines. In 2016–17, China was the largest supplier of API to India with 66% share by volume of API raw material supplies to India worth US$2.4 billion or INR 18,000 crore, followed by US$1.6 billion API imported from Germany, the US, Italy and Singapore are other major suppliers to India.

Exports

The Indian pharma sector recorded its best-ever exports performance in 2022-23, with a remarkable growth of almost

$10 billion in 8 years. The countrys pharma sector witnessed a growth of 103% since 2013-14, from INR 90,415 crore in 2013-14 to INR 1,83,422 crore in 2021-22. The industry had registered a sharp growth by achieving an export of $25.39 billion with a year-on-year (y-o-y) growth.

Indian pharmaceutical exports stood at US$ 25.39 billion in FY23 and US$ 22.21 billion in FY22 (until February 2022). India is the 12th largest exporter of medical goods in the world. The countrys pharmaceutical sector contributes 6.6% to the total merchandise exports. As of May 2021, India supplied a total of 586.4 lakh COVID-19 vaccines, comprising grants (81.3 lakh), commercial exports (339.7 lakh) and exports under the COVAX platform (165.5 lakh), to 71 countries. Indian drugs are exported to more than 200 countries in the world. Generic drugs account for 20% approx. of the global export in terms.

The foreign direct investment (FDI) inflows in the Indian drugs and pharmaceuticals sector reached US$ 2.05 billion on March 2023, thereby FDI equity inflow into the pharmaceutical industry in India has jumped by 45.4% in the fiscal year ended March 2023, compared to inflow in the previous fiscal year. FDI crossed $2.05 billion compared to $1.41 billion of the previous year. This follows on the back of a decline of 5% in foreign equity infusion for the fiscal year 2021-22.

Recently, India also signed cooperation agreement with UAE and Australia, which will give enhanced access to Indian

pharma products to these markets.

Building on the outstanding performance in the previous FY22, Indian pharma exports once again registered a healthy performance in 2022-23. The pharma exports in 2022-23 sustained a positive growth despite the global trade disruptions and drop in demand for Covid related medicines.

Source: Press release by Ministry of commerce and industry

R&D spending in Indian pharmaceuticals

The Indian pharmaceutical industry is now seeking to move up the global pharmaceutical value chain by investing in R&D for drug development, drug repurposing, process improvements and digital manufacturing.

As per the Union Budget 2023-24, INR 3,201 crore (US$ 419.2 million) has been set aside for research and INR. 89,155 crores have been allocated for the Ministry of Health and Family Welfare.

India plans to set up a nearly INR 1 lakh crore (US$ 1.3 billion) fund to provide boost to companies to manufacture phar- maceutical ingredients domestically.

RISK AND CONCERNS

1. Exchange rate fluctuations
2. Evolving competition
3. Global crisis including war
4. Restriction on exports

COMPANY OVERVIEW

Our Companys prime focus is to expand revenue from registered products globally and continue to apply for registration

to generate opportunities.

Bafna pharmas global foot print –

S.No	Name of Country	No. of Products Approvals	No. of Application Pending for Registration
1	AZERBAIJAN	-	6
2	AUSTRALIA	-	6
3	BOLIVIA	-	1
4	CAMBODIA	-	-
5	CAMEROON	-	7
6	DEMOCRATIC REPUBLIC OF THE CONGO	2	2
7	ETHIOPIA	7	20
8	GHANA	-	9
9	GUATEMALA	1	1
10	HONDURAS	4	9
11	KAZAKHSTAN	-	-
12	KENYA	5	-
13	MAURITIUS	7	-
14	MADAGASCAR	8	9
15	MYANMAR	1	-
16	NEPAL	10	24
17	NIGERIA	40	31
18	PERU	2	-
19	PHILIPPINES	22	29
20	RUSSIA	-	3
21	RWANDA	-	9
22	SRI LANKA	42	22
23	TANZANIA	15	17
24	UGANDA	-	9
25	UK	-	1
26	UKRAINE	20	1

S.No	Name of Country	No. of Products Approvals	No. of Application Pending for Registration
27	VIETNAM	-	6
28	ZAMBIA	-	9
29	Nicaragua	-	1
	TOTAL	186	232

Performance and operations review Operating results

Major highlights

1. Increase in total revenue of your Company by 37% and from sales by 35% of the previous year.
2. Increase in EBIDTA by 64% from the previous year.
3. Increase by 221% of Profit after tax including exceptional items from the year ended 31st March 2023

The sales and operating income were INR 11,862.26 Lakhs in comparison to INR 8,683.83 Lakhs in the previous year registering a growth of 37%. EBIDTA was INR 1,886.31 Lakhs for the year ending 31st March 2023 in comparison to INR 1147.94 Lakhs for the previous year registering a growth of 64 %.

Key Ratio for the year ending 31st March 2023

Key Financial Ratios		31st March 2023
Profitability Ratio
Operating Profit Margin (%)	Profit from Operations/ Sale of Products	10.07 %
Net Profit Margin (%)	Profit after Tax/ Revenue from operations	9.69 %
Return on Net Worth	Profit after Tax/ Shareholders equity	1.61
EBITDA %	EBITDA %	15.90 %
Efficiency Ratios
Current Ratio	Current assets/ current liabilities	1.88
Inventory turnover ratio	Sale of products/ Average inventories	5.43
Debtors turnover ratio	Sale of products/ Average trade receivables	4.12
FA Turnover Ratio	Sale of Products/ Average Fixed Assets	3.40

Internal control systems

The Company has internal control systems, with defined guidelines on compliance, which enables it to run its facilities and head office with a fair degree of comfort. Internal Audit was undertaken by an Independent Auditor M/s K S Rao & Co., Chartered Accountant firm, Chennai, for the financial year 2022-2023.

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 audi- tors, adequacy/scope of internal audit function, significant findings and follow up there on 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 March 31, 2022, was 495 and on March 31, 2023, was 588.

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 by providing them with adequate opportunities. We have made efforts to discipline our hiring process. Acquisition and retention of talent which is in line with your companys goals continues to be a major thrust area.