kopran ltd Management discussions

ECONOMIC OVERVIEW Global Economy

In Financial Year 2022-2023, global economy faced significant challenges due to on-going geographical tensions, supply chain bottlenecks, inflationary pressures led to slower than expected and stringent monetary policies adopted by Central Banks worldwide.

Indian Economy

In 2022-23, Indias economy demonstrated remarkable resilience and growth, expanding at an impressive rate of 7.2%. This positive trajectory was propelled by robust domestic consumption, increased capital expenditure, a surge in foreign investments, and the thriving manufacturing sectors strong performance. Through these factors, India has demonstrated its potential as a major player in the global economy. The 2022-23 Union Budget prioritized the manufacturing sectors growth by expanding the national highway network through the GatiShakti initiative and ensuring inclusive development with accessible infrastructure. Productivity-linked incentives were introduced to enhance competitiveness, and a significant increase in capital expenditure aimed to attract global investors. These measures aimed to position India as an attractive manufacturing hub, driving sectoral growth and fostering economic development. The Governments commitment to developing better infrastructure, promoting productivity, and encouraging investment is expected to further strengthen the Indian economy and contribute to sustained growth in the coming years.

Outlook

The outlook for the Indian economy remains highly optimistic, with expectations of a significant turnaround in investments that will propel sustainable growth. Despite the ongoing struggles of the global economy, India is anticipated to achieve a moderate growth rate of 6.0% - 6.5% in 2023-24. This growth is likely to gain momentum in the following year as investments initiate a virtuous cycle, fostering job creation, increased income levels, enhanced productivity, heightened demand and amplified exports. Furthermore, Indias favourable demographic factors are expected to contribute to its economic progress in the medium term. Overall, the Indian economy is poised for a positive trajectory, with a promising future driven by revived investments and the multitude of benefits stemming from a buoyant domestic market.

INDUSTRY OVERVIEW

Indian Pharmaceutical Industry

The Indian pharmaceutical industry has gained global recognition for its production of generic medicines and low-cost vaccines. Over the years, the industry has undergone significant transformation and has emerged as a dynamic sector. In terms of volume, it holds the third position globally, and in terms of value, it ranks 14th. The industry has a significant contribution of approximately 1.72% to the countrys GDP The major segments of the industry include Generic Drugs, OTC Medicines, API/Bulk Drugs, Vaccines, Contract Research & Manufacturing, Biosimilars, and Biologics. This diverse range of segments has propelled the industrys growth, establishing it as one of the most vital sectors in the countrys economy.

The Indian pharmaceutical sector stands out globally with the second-highest number of pharmaceutical factories, after the US, that comply with US-FDA regulations. Recognizing the potential for future growth, the Government has prioritized fostering inclusive and sustainable development within the industry. This focus aims to create a conducive environment for the sectors expansion, enabling it to effectively cater to both domestic and international markets. This commitment to excellence positions the sector to thrive in the global market and contribute significantly to Indias economic growth and healthcare advancement.

Active Pharmaceutical Ingredient Industry (API)

The Indian active pharmaceutical ingredient (API) industry has established itself as a major player in the global pharmaceutical landscape. With a significant contribution of around 35%, APIs are crucial components that generate the intended medical effects of drugs. India has emerged as the 3rd largest market for APIs worldwide, holding an 8% share in the global API industry. The country manufactures over 500 different APIs and an impressive 57% of them are included in the prequalified list of the World Health Organisation (WHO). Renowned for its commitment to quality, innovation, and cost-effectiveness, the Indian API industry complies with stringent regulatory standards, such as the US FDA. This achievement is attributed to its robust infrastructure, skilled workforce, and strong Government support. As an integral part of the countrys pharmaceutical sector, the Indian API industry offers a diverse range of high-quality APIs, catering to both domestic and international markets.

GROWTH ENABLERS

• Government Support: The Indian government has provided significant support to the pharmaceutical industry through various incentives, including the introduction of schemes like PLI 1.0 and PLI 2.0, with an outlay of 21,940 Crs.

• Medical Tourism: Indias status as a preferred medical tourism destination is attributed to the availability of high-quality healthcare services at comparatively lower costs than the US, Europe, and other South Asian countries, attracting medical tourists worldwide.

• Infrastructure Development: The country boasts the highest number of US-FDA compliant manufacturing plants outside of the United States, showcasing its strong infrastructure development in the pharmaceutical sector.

• Strong Drug Manufacturing: India possesses expertise in the production of low-cost generic drugs as well as end-to-end manufacturing capabilities, enabling cost-effective production of both patented and generic drugs.

• Strong Domestic Demand: The launch of the worlds largest National Health Protection Scheme in India has generated strong domestic demand for pharmaceutical products, driving the industrys growth and providing opportunities for expansion.

OPPORTUNITIES

• Rising income levels: The pharmaceutical sector in India has an opportunity for growth due to rising income levels, leading to an increasing demand for high-quality healthcare services. This favorable market environment allows the industry to expand its offerings, meet the increasing healthcare needs, and potentially drive sales and sectoral growth.

• Government initiatives: The Government initiatives in India, such as Ayushman Bharat and the National Commission for Allied and Healthcare Professions Bill 2021, along with programs like the PLI scheme and expansion of Jan Aushadhi stores, provide opportunities for the pharmaceutical sector. These initiatives support the sectors growth by increasing accessibility to healthcare services, promoting domestic manufacturing, and expanding pharmacy services, creating an environment conducive for the pharmaceutical industry to thrive and meet the growing demand for affordable healthcare solutions.

• Increasing life expectancy: The increasing life expectancy in India presents an opportunity for the pharmaceutical sector, as the aging population will require a higher demand for healthcare services and medicines. With a larger proportion of the population reaching older age groups, pharmaceutical companies will be required to develop and provide medications that cater to age-related ailments, potentially resulting in growth and market expansion for the sector.

• Growth in lifestyle diseases: The pharmaceutical sector has an opportunity due to the rise in lifestyle diseases, especially in chronic segments like cardiovascular and anti-diabetic therapies. With an increasing market share for chronic medications, pharmaceutical companies have the potential to innovate and offer effective treatments for diseases, leading to an improved quality of life for those affected and contributing to the growth of the sector.

• Growth in partnerships and co-marketing agreements: The growth in partnerships and co-marketing agreements provides a chance for the pharmaceutical sector. It allows Indian companies to collaborate with foreign counterparts, enabling rapid market penetration for new brands and increased sales for existing products, ultimately driving growth and expansion in the industry.

• Increase in health insurance coverage: The increase in health insurance coverage, driven by initiatives like Ayushman Bharat, presents an opportunity for the pharmaceutical sector. With a larger population covered by health insurance, more individuals will have access to healthcare services, including medications, leading to increased demand and potential growth for the pharmaceutical industry.

GOVERNMENT INITIATIVES

The Indian Government has implemented several initiatives to strengthen and support the pharmaceutical industry in the country. The Budget for 2022-23 allocated increased spending of 862 Billion, with 64 Billion specifically earmarked for the Ayushman Bharat PMJAY health insurance scheme. The Ministrys Strengthening of Pharmaceutical Industry scheme provides financial support of 500 Crores to enhance productivity, quality, and sustainability of existing pharma clusters and MSMEs across the country.

The Government has also focused on expanding access to affordable medicines through the Pradhan Mantri Bhartiya Jan Aushadhi Kendras (PMBJKs), with a target to increase their number to 10,500 by March 2025. Additionally, liberalized foreign direct investment (FDI) policies allow up to 100% FDI through the automatic route for Greenfield projects and up to 74% for Brownfield projects, with higher investments requiring Government approval.

To encourage innovation, the Government has introduced initiatives, such as centers of excellence to promote pharmaceutical research and development, while urging businesses to invest in research and development in priority fields. Furthermore, the Government plans to establish 157 nursing colleges in collaboration with Government medical colleges to strengthen healthcare infrastructure at the grassroots level. These initiatives aim to propel growth, research, and innovation within the pharmaceutical sector, ensuring its continued development and contribution to Indias healthcare ecosystem.

OUTLOOK

The Indian Pharmaceutical Market (IPM) has experienced significant growth, increasing from 660.53 Billion in 2011-12 to 1,854.98 Billion in 2021-22, representing a Compound Annual Growth Rate (CAGR) of approximately 10.88% over the period. Looking ahead, the IPM is projected to maintain its growth trajectory, with a forecasted CAGR of 10-11%, reaching 3,000 - 3,100 Billion by 2026-27. The Indian pharmaceutical industry presents a high-growth potential market that serves as a defensive shield against economic downturns, while international markets face challenges, such as regulatory pressures, increased R&D expenditures, and geopolitical tensions. In comparison to developed markets like the USA and the EU5, which registered a CAGR of approximately 5-6% over 2017-22, the IPM demonstrated an uptick of CAGR of around 12% during the same period. This indicates the resilience and strong performance of the Indian pharmaceutical industry, positioning it as a key player in the global market.

COMPANY OVERVIEW

Kopran Limited (referred to as Kopran or The Company) is a prominent Indian pharmaceutical company known for its expertise in manufacturing and marketing pharmaceutical formulations and active pharmaceutical ingredients (APIs). The Companys mission revolves around delivering high-quality and affordable healthcare solutions to individuals worldwide. Established in 1980, Kopran has emerged as a key player in the Indian pharmaceutical sector, equipped with state-of-the-art manufacturing facilities and stringent quality control processes to ensure compliance with rigorous regulatory standards. Its comprehensive product range covers diverse therapeutic areas, addressing conditions such as cardiovascular, respiratory, central nervous system, and gastrointestinal disorders. The Company operates in two distinct business verticals. The first involves pharmaceutical formulations production, managed by Kopran Limited. The second vertical focuses on the manufacturing of active pharmaceutical ingredients (APIs) and is operated by a wholly-owned subsidiary called Kopran Research Laboratories Limited (KRLL). With a strong emphasis on research and development (R&D), the Company remains committed to continuous innovation and expanding its product portfolio to meet the evolving demands of the healthcare industry.

DEVELOPMENTS DURING THE YEAR

• Continuous measures are taken towards process/technology and yield improvement to make products more competitive and profitable.

• Undertook the upgrading and expansion of the multi-product plant at the Mahad facility to cater to the increasing demand for existing products and to manufacture new molecules that are being developed.

• Developed APIs and formulations for both regulated and non-regulated markets.

• Filed Drug Master Files (DMFs) and dossiers in both regulated and non-regulated markets.

• To increase geographical reach, the company aims to enter new markets.

PRODUCT PORTFOLIO

Formulation

Kopran offers an extensive array of formulations covering diverse therapeutic areas, providing a comprehensive range of solutions for various medical conditions. The Companys product line includes tablets, capsules, syrups, injectables, and topical preparations, all crafted with a strong emphasis on quality and efficacy. With a profound understanding of global market demands, the Company boasts an extensive range of over 100 dosage forms, comprising oral solid dosages, dry powders, and suspensions. Kopran specializes in developing and manufacturing Penicillin and non-Penicillin-based drugs in these formulations, catering to 100% export markets, encompassing both regulated and non-regulated sectors.

Outlook

• To automate manufacturing and packing lines to increase the output of finished products, enhance efficiency across the production chain, and reduce variable and manpower costs.

• To participate in tenders in various countries.

• Develop new products and has filed 171 dossiers in both regulated and non-regulated markets.

• To expand its geographical reach by entering new markets.

ACTIVE PHARMACEUTICAL INGREDIENT

Kopran holds a distinguished position as a leader in Active Pharmaceutical Ingredients (APIs) manufacturing. APIs are essential components that impart therapeutic effects to pharmaceutical formulations. The companys strong commitment to producing high-quality APIs and meeting rigorous regulatory standards has established its prominent presence in the industry. Its state-of-the-art facility is dedicated to manufacturing a diverse range of APIs, including Sterile Cephalosporins, which require top-notch infrastructure and stringent quality systems. In addition to Sterile APIs, Kopran offers specialty products such as Macrolides, anticonvulsants, and cardiovascular drugs. With expertise spanning the development, manufacturing, and sales of APIs and advanced intermediates, the company is highly regarded as a prominent player in Atenolol production and holds a significant market share in Sterile Carbapenems. Notably, its core product categories consist of Sterile Carbapenems (36%), Anti-Hypertensive drugs (17%), and Macrolides (~16%).

OUTLOOK

• Developing a complete range of Carbapenem products to solidify its position in the segment.

• Developing an Anti-thrombosis and Anti-diabetic portfolio.

• Plan to capture a significant share of the US Atenolol market within the next two years.

• Plans to file Drug Master Files (DMFs) for new products that are being developed in both regulated and non-regulated markets.

• To start Panoli facilities and increase capacity at the Mahad location.

SUSTAINABLE GROWTH STRATEGY

The sustainable growth strategy of the Company includes:

• Emphasising research and development (R&D) to create niche, high-value and high-volume active pharmaceutical ingredients (APIs) and intermediates.

• Prioritising capacity expansion for both APIs and formulations to support business growth.

• Decreasing reliance on China and striving for self-sufficiency to reduce dependency risks.

• Leveraging synergies between APIs and formulations to enhance operational efficiency and competitiveness.

• Expanding the customer base for new products to drive market growth.

• Ensuring best-in-class quality through strict compliance measures to maintain customer satisfaction and trust.

FINANCIAL PERFORMANCE

As the global economy continued to face several challenges like high inflationary pressure, the Ukraine Crisis, geopolitical tensions, demand concerns in a few discretionary sectors, falling prices, and inventory losses had impacted the performance of the Company, particularly of the API business. The prices are stabilizing now.

FINANCIAL PERFORMANCE HIGHLIGHTS

Key Financial Ratios based on Consolidated Financial Statement

Key Ratio	2022-23	2021-22	Variance % +/(-)	Remarks
Debtors Turnover Ratio	3.80	3.86	(1.52)	-
Inventory Turnover Ratio	2.56	2.17	17.71	-
Interest Coverage Ratio	6.93	16.98	(59.20)	Decrease in interest cost and margin pressure.
Current Ratio	2.25	2.74	(17.61)	-
Debt Equity Ratio	0.19	0.19	0.33	-
Net Profit Margin (%)	6.55	17.13	(61.78)	Margins were under pressure due to falling prices and inventory losses.
Return on Net Worth	0.07	0.21	(66.36)	Decrease in margin and inventory losses.

Key Financial Ratios based on Standalone Financial Statement

Key Ratio	2022-23	2021-22	Variance % +/(-)	Remarks
Debtors Turnover Ratio	3.82	3.77	1.44	-
Inventory Turnover Ratio	3.99	3.70	7.66	-
Interest Coverage Ratio	14.82	6.47	128.87	Decrease in interest cost.
Current Ratio	1.89	1.98	(4.88)	-
Debt Equity Ratio	0.07	0.10	(27.49)	Decrease in borrowings.
Net Profit Margin (%)	13.52	7.90	71.03	Decrease in starting alphabet of every word in small case
Return on Net Worth	0.08	0.04	115.00	Increase In Net Profit.

Key Financial Highlights on the Consolidated Basis

( in Lacs)

Particulars	2022-23	2021-22	Increase/ (Decrease) (%)
Income from Operations	55,098.70	47,752.10	15.38
EBITDA	5,179.66	8,739.37	(40.73)
PBT	3,606.59	8,178.08	(55.89)
PAT	2,723.3	6,103.12	(55.38)
Material Costs	32,161.27	27,137.64	18.51
Employee benefit expenses	4,994.60	4,326.69	15.44
Other Expenses	8,522.00*	7,548.40	12.9
Shareholders Fund	43,924.57	42,616.89	3.07
Non-Current liabilities	3,348.22	3,313.26	1.06
Current Liabilities	17,697.10	15,158.56	16.75
Non-Current assets	25,063.18	19,601.24	27.87
Current Assets	39,906.71	41,487.47	(3.81)

* Other Expenses does not include Foreign Exchange Loss (Net) of 546.06 Lacs.

Key Financial Highlights on the Standalone Basis

( in Lacs)

Particulars	2022-23	2021-22	Increase/ (Decrease) (%)
Income from Operations	27,309.48	20,452.04	33.53
EBITDA	2,791.31	1,541.32	81.10
PBT	3,691.51	1,616.43	128.37
PAT	3 125.28	1,174.43	166.11
Material Costs	13,741.11	12,782.67	7.5
Employee benefit expenses	2,514.67	2,105.45	19.44
Other Expenses	4,234.48	4,022.60	5.27
Shareholders Fund	39,558.64	37,872.41	4.45
Non-Current liabilities	948.49	914.27	3.74
Current Liabilities	10,087.77	7,625.42	42.65
Non-Current assets	31,553.65	31,280.96	0.87

RISK MANAGEMENT & CONCERNS

	Risk	Mitigation
Regulatory Risk	Operational risk factors, such as manufacturing or quality control issues, have the potential to adversely affect the Companys reputation, leading to impacts on its business, financial condition, and operational results.	The company follows the highest safety, health, and environment standards. It has developed SOPs and a compliance framework to manage and mitigate risks.
Raw Material Risks	The risk posed by suppliers can significantly affect the performance of the Company, as it may cause disruptions in the supply chain, lead to increased costs, and impact the quality of raw materials used in production.	Kopran reduces price risk by sourcing materials from various suppliers, monitoring price trends, and developing unique purchase policies for each product, while selling on a material-cost basis to mitigate price volatility.
Innovation Risk	The research and development risk can impact the Company, as it may result in failed clinical trials, higher R&D costs, and delays in product launches, which can reduce profitability and competitiveness.	The company implements a risk mitigation strategy by investing in advanced technologies, a skilled R&D workforce, and laboratory infrastructure, while fostering partnerships with prominent global entities to stay informed about industry advancements.
Competition Risk	This risk impacts the Company, as it poses the threat of market share loss, reduced profitability, and decreased competitiveness due to rival companies advancements, pricing strategies, and product innovations.	As a risk mitigation strategy for competition risk, the Company continuously improves its business capacities and capabilities to meet global standards through in-house costcutting initiatives and exploration of new geographies.
Forex Risk	Fluctuations in the forex can impact earnings.	The companys treasury department enters into hedging contracts on a need basis to mitigate this risk.

QUALITY & CONCERNS

The company has established a solid reputation for excellence, which is attributed to its managements unwavering commitment to maintaining world-class facilities and stringent quality standards. The company consistently meets customers expectations by implementing well-defined validation steps to monitor facilities and processes in compliance with regulations and requirements. It has implemented top-notch quality systems that cover all business processes from supply chain management to product delivery across all its facilities. These quality management systems undergo continuous evaluation and upgrading to comply with the latest industry regulations and best practices. The company has also strengthened its quality process by adopting digitisation, which enables effective management of compliance and risk, while simultaneously keeping up with the increasing number of processes and research and development activities.

INTERNAL CONTROL SYSTEM

The companys internal control system is well-tailored its size and nature, fostering a culture of innovation and continuous improvement. The Audit Committee of the Board regularly reviews the effectiveness of the system in recording transactions, managing assets, and reporting. To ensure financial reporting accuracy and regulatory compliance, an independent firm of chartered accountants conducts quarterly internal audits. The Audit Committee meticulously scrutinises the reports submitted by the Internal Auditors. Any issues highlighted by both the Internal and Statutory Auditors receive careful consideration and prompt resolution, underscoring the Companys unwavering commitment to upholding high standards of internal control and corporate governance.

CAUTIONARY STATEMENT

The statement, forming a part of this Report, may contain certain forward-looking remarks within the meaning of applicable Securities Law and Regulations. Many factors could cause the actual results, performances, or achievements of the Company to be materially different from any future results, performances, or achievements. Significant factors that could make a difference to the Companys operations include domestic and international economic conditions, changes in Government regulations, tax regimes, and other statutes.