Take Solutions Management Discussions

Industry Outlook

GLOBAL ECONOMY

The global economy is expected to grow at a slower pace in 2023 and 2024 than in 2022. The IMF has forecast global growth of 2.8% in 2023 and 3.0% in 2024, down from 3.4% in 2022. There are a number of factors that are contributing to the slowdown in global growth. These include (i) The war in Ukraine, which has disrupted trade and investment and led to higher energy and food prices; (ii) The tightening of monetary policy in major economies, which is designed to cool inflation but is also likely to weigh on economic activity; (iii) The slowdown in China, the worlds second-largest economy.

Despite the slowdown, there are some bright spots in the global economy. The United States is expected to continue to grow at a healthy pace, and emerging markets and developing economies are expected to grow at a faster pace than advanced economies. Inflation is also expected to remain elevated in 2023 and 2024. The IMF has forecast inflation of 6.6% in advanced economies and 8.7% in emerging markets and developing economies in 2023.

The main risks to the global economic outlook are: (i) A prolonged war in Ukraine, which could lead to a further escalation of energy and food prices and a more pronounced slowdown in global growth; (ii) A more aggressive tightening of monetary policy in major economies, which could lead to a recession; (iii) A sharp slowdown in China, which could have a significant impact on global trade and investment.

Source: International Monetary Fund (IMF)

INDIAN ECONOMY

The global economy has faced multiple crises over the past two years, including liquidity troubles caused by global bank crises. These uncertainties have led to a lack of confidence among consumers and businesses, which has impacted economic growth. The World Bank is concerned that this could result in a "lost decade" of economic growth. However, despite this, many market analysts believe that India could see significant growth over the next few years.

Recent data revisions suggest that Indias economy has fared better than previously thought, and the IMF expects India to grow at an average rate of 6.1% over the next five years. While the global economy continues to struggle, Indias economy is expected to grow at a moderate pace of 6.0% to 6.5% in FY 2023-24. Investments are expected to play a significant role in driving sustainable growth, and favorable demographics could support this growth in the medium term. While the world has learned to live with the pandemic, geopolitical crises, supply chain reorientations, global inflation, and tight monetary policy conditions could still impact the economic outlook. Overall, the outlook for the Indian economy remains positive.

GLOBAL CLINICAL RESEARCH

INDUSTRY

According to a report by Global Industry Analysts, the Global Contract Research Outsourcing Market, which includes clinical, discovery, preclinical, and lab services, is projected to reach $67.1 billion by 2026 from $50.25 billion in 2022 at a CAGR of 7.5%. The United States market is estimated to be worth $20.1 billion in 2022 and

currently holds a 40% share of the global market. The growth in North America is attributed to the presence of significant investments in research and development (R&D) for new drugs and therapies, advanced infrastructure for clinical research, and government incentive programs in the United States and Canada. The APAC region contributes to about 13.5%, valued at $6.76 Mn in 2022. The APAC region is projected to grow at a higher CAGR of 8.34% over the next 5 years.

One of the key reasons for this growth is the increasing number of drugs under development. The number of drugs in the R&D pipeline grew from 17,737 in 2020 to 20,109 in 2022. The number of newly registered studies went up from 32,517 in 2019 to 36,770 in 2022, at a CAGR of 4.2% between 2019 and 2022. This growth in the R&D pipeline is boosting the outsourcing of the drug development process with an aim to manage capacities and access scientific and process innovations to develop cost-effective and efficient drug molecules ultimately. This is expected to provide strong tailwinds for the CRO industry over the next few years.

Source: Markets and Markets, pharma r&d annual review, clinicaltrials.gov

GENERICS INDUSTRY

The global market for generic drugs was valued at USD 439.37 billion in 2022 and is estimated to reach approximately USD 670.82 billion by 2030, growing at a compound annual growth rate (CAGR) of 5.4% between 2022 and 2030. The forecast period indicates a significant increase in the global generic drugs market. The main factor driving the growth of this industry in the near future is the lower cost of generics as an alternative to branded drugs. Moreover, the adoption of Robotic Process Automation (RPA) to ensure compliance with regulations and standards presents lucrative growth opportunities for key players in the market. RPA utilizes artificial intelligence (AI) technology to automate routine tasks, allowing industry players to focus on more advanced value-added activities. This trend of using RPA to ensure compliance is expected to gain traction in the generic drugs market. Pharmaceutical companies commonly employ RPA systems for high-volume research and development (R&D) and production activities. The RPA technology involves software that performs various tasks such as data entry, measurements, and completion of necessary activities, with the aim of achieving faster procedures and cost reduction while ensuring regulatory conformity.

A patent cliff is looming once again for the biopharma industry, $236 billion worth of patents expiring between now and 2030. In the next eight years, more than 190 drugs will go off-patent. Of those, 69 are blockbuster drugs (annual sales of at least $1 billion). Many of the drugs are biologics across multiple therapeutic areas with respiratory diseases, type II diabetes and oncology being the top areas.

Stringent regulations pose a major obstacle to the growth of generic drugs as the FDA scrutinizes the accuracy, side effects, and ingredients used in these drugs. Non-compliance with regulatory guidelines often leads to drug recalls. This in turn fuels the demand for partnering with experienced CROs that are capable of navigating these complexities and delivering the desired outcomes. CROs are equipped with a dedicated team of professionals who possess extensive knowledge and expertise in complex segments of the generics market. They can help streamline the R&D process, ensuring efficient study design, patient recruitment, and data collection. Resulting in accelerated timelines for developing and submitting an ANDA (An abbreviated new drug application (ANDA) contains data which is submitted to FDA for the review and potential approval of a generic drug product.)

As a testimony to the rebound of the generics drug development industry, a total of 742 ANDA approvals were granted during the calendar year 2022, registering a growth of 17% over last year. Additionally, 136 Tentative Approvals were also granted, again a similar growth over 2021 numbers (117) as seen for final ANDA approvals. Indian players contributed a large proportion of the incremental number of approvals this year, with 355 or 48% of total ANDA approvals, further consolidating their share from 42% (267 approvals) from last year.

The number of "First generics" approved by FDA is also on the rise. "First generics" are just what they sound like—the first approval by FDA which permits a manufacturer to market a generic drug product in the United States. The agency approved 107 "first generics" in 2022, up from 93 in 2021 and 72 in 2020. 63 approvals of the 107 in 2022 were granted through the Competitive Generic Therapy (CGT) route. CGT is a special pathway for accelerated approvals created by FDA for drugs that are classified as "drugs with inadequate generic competition".

Companies have not only maintained the momentum but also accelerated filings, even during the ongoing waves of the COVID-19 pandemic, resulting in a higher number of ANDA approvals in 2022 across all dosage forms, competition levels, and product complexity including drug-device combination products. We may see a higher number of approvals through the Competitive Generic Therapy (CGT) route in the future as the list of open opportunities gets expanded and companies gain experience. Overall, the global generics studies market valued at USD 679.8 Mn in 2022 is expected to grow at a CAGR of 8.3% over the next 5 years.

Source: Precedence Research, Global View Research, FDA, expresspharma

BUSINESS HIGHLIGHTS

The company boasts over two decades of market presence, establishing us as a respected and reliable entity in the Generics industry. With deep customer relationships, we have forged partnerships with marquee pharma majors. These enduring connections are a testament to our commitment to providing exceptional services. Our global footprint allows us to cater to a wide range of customers across the United States, European Union, and India, with a particular focus on the Generics segment, where complex segment specialization is required to address the unique demands of the US and other global markets.

Regulatory compliance is at the core of our operations, and we take pride in our track record of meeting stringent quality standards. Over 70% of our regulatory filings are with the FDA, reflecting our dedication to satisfying the rigorous requirements set by the US regulatory authority. Additionally, we have submitted 15% of our filings to the EMA and Canadian regulatory authorities, demonstrating our commitment to global regulatory standards.

We have extensive experience with respiratory generics, completing over 20 studies across 200 sites and enrolled over 3600 patients. Our state-of-the-art clinical laboratories meet stringent requirements to conduct any inhalation study. We have close to 20 bioanalytical methods developed for respiratory diseases and have the capability to develop new methods within 4 weeks. We have also invested in and built up the necessary expertise and infrastructure to support all biosimilar insulin products targeted at treating diabetes. Our diabetes clinical trial experience includes over 20 studies across 450 sites including over 4500 patients. We are poised to take full advantage of the drugs coming off patent in the coming decade.

Our focus on quality resources, research, and unique intellectual property has established a robust competitive moat. This, combined with our extensive knowledge repository across several therapeutic areas and marquee client relationships, gives us a distinct advantage in the market. Furthermore, the recent expansion of our facilities, coupled with the necessary regulatory approvals in place, presents significant opportunities for further growth in both topline and profitability.

Risk Management

The company recognizes the significance of risk management and considers it a fundamental element of sound corporate governance. We remain committed to integrating risk management into our daily operations and culture, as stated in our Quality Management practices.

Aligning our Risk Management Policies with our long term goals

Our company consistently evaluates and supervises our risk management and internal control framework, embodying our identity as a responsible company driven by goals to improve patient outcomes.

Enabling Effective Enterprise Risk Management

Our approach involves creating enterprise risk plans that provide a detailed account of each risk, its context, our assessment, risk appetite, treatment strategies, and the necessary actions for businesses to mitigate the risk in accordance with our internal control framework.

The Enterprise Risk Management process consists of the following five steps:

• Risk and Opportunity Identification:

Identify potential risks and opportunities for key processes within the organization.

• Risk Impact Evaluation:

Assess the potential impact of identified risks across various business operations.

• Mitigation Plan Development:

Develop a comprehensive plan to mitigate the identified risks, ensuring alignment with the organizations Risk Appetite.

• Ongoing Risk Monitoring: Regularly monitor the identified risks

• Effective Risk Reporting: Provide updates to the Risk Management Committee to ensure effective oversight.

Proactive Risk Management

Our company emphasizes proactive risk management and compliance at all levels. To achieve this, our risk management committee continuously identifies emerging risks as an ongoing process.

The company has classified the risks into five categories:

i. Strategic risks

ii. Operational risks

iii. Data Privacy and Cyber Security risks

iv. Financial risks

v. Compliance Risks

Each identified risk is assessed according to its probability and impact on the company.

Board Oversight - Risk Management Committee

The Board of Directors has formed an internal risk management committee to identify, evaluate, mitigate and monitor the risk management in the company. The primary objectives of the Committee is to assist the Board in the following:

• To provide an oversight for all categories of risk and promulgate risk culture in the organization.

• To adopt leading risk management practices in the industry and manage risk proactively at organizational level.

• Help to develop a culture of the enterprise that all levels of people understand risks.

• Provide input to management of risk appetite and tolerance and monitor the organizations risk on an ongoing basis.

• Approve and review risk management plan which includes companys risk management structure, framework, methodologies adopted, guidelines and details of assurance and review of the risk management process.

• Monitor risks and risk management capabilities and mitigation plans.

Key focus Areas During the Year

Through our risk assessment exercise, we ensure that key risks are effectively managed or that appropriate actions are being taken to address any identified gaps. Within our risk plans, we prioritize the inclusion of controls to address potential issues.

During the year, notable highlights regarding risk management that were reviewed by the Boards Risk Management Committee included:

• Strategic risks to Business model & business stability with a view to containing the impact on operating business & customer engagement and preserving long term shareholder value.

• Operating & Compliance risks around expansion of the companys clinical facilities in Manipal and its successful regulatory certification to commence operations.

• Measures adopted to ensure high level of information security and other cyber security measures which were further enhanced during the year.

We maintain stable risk exposure by consistently conducting thorough risk scanning and assessments. These practices provide us with valuable insights that

inform the evolution of our control framework, allowing us to adapt and align with changes effectively.

Internal control systems and their adequacy

Adequate internal control systems commensurate with the nature of the Companys business, size and complexity of its operations are in place and have been operating effectively. The Directors have laid down policies and procedures which are adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. Apart from this your Company has also engaged a full- fledged professional Internal Audit firm to test and check the Internal Controls of all systems and suggest corrective and remedial measures.

The Audit Committee deliberated with the members of the Management, considered the systems as laid down and met the internal audit team and statutory auditors to ascertain their views on the internal financial control systems. The Audit Committee satisfied itself as to the adequacy and effectiveness of the internal financial control systems as laid down and kept the Board of Directors informed. However, the Company recognises that no matter how the internal control framework is, it

has inherent limitations and accordingly, periodic audits and reviews ensure that such systems are updated on regular intervals. The Statutory Auditors have also issued a report on review of Internal Financial Controls (ICFR) and have expressed that the Internal Controls over Financial Reporting are adequate and operating effectively.

Human Resources

Our employees are our utmost important assets. 211 persons were working with the Company as on March 31, 2023. We believe the quality and commitment level of our professionals is at par with the market standards. TAKE continues to focus on key drivers of employee engagements, career progression, learning opportunities, fair performance, rewards and employee well-being by enhancing its HR processes for scale, agility and consistent employee experience. Further, it also organizes workshops enhancing the skill sets of its employees and promoting their overall involvement. Our Company also assigns individual goals to the employees, in alignment to the organizational objectives which not only acts as a strong motivator but also contributes towards improving the overall efficiencies of the business. Moreover, our open door policy aids employees raise their concerns or share their opinions/ suggestions resulting in high engagement levels and lower employee turnover ratio.

Financial review

The financial statements of TAKE Solutions Ltd and its subsidiaries (collectively referred to as TAKE or the Company are prepared in compliance with the Companies Act, 2013 and Indian Accounting Standards (IND-AS)). Details of Significant Accounting Policies used for the preparation of the financial statements are presented in the notes to the consolidated financial statements appended later in this Annual Report. The discussions below relate to the Consolidated Statement of Profit & Loss for the year ended March 31, 2023, and the Consolidated Balance Sheet as at March 31, 2023. The consolidated results are relevant for understanding the financial performance of TAKE.

Results of operations

The five-year financial summary of the company is provided below:

The revenue dropped by 71% year on year (YOY) to Rs. 1,891 Mn from Rs. 6,526 Mn in 2021-22 due to discontinuance of operations arising out of sale of foreign subsidiaries, the revenue is not considered in the year 2022-23.

In INR Mn

OPERATIONS	FY23	FY22 Revised	FY21	FY20	FY19
Income from operations	1,891	6,526	7,740	22,129	20,390
Operating EBIDTA	(190)	101	(730)	1,689	3,835
Net Profit / (loss) for the year after Minority Interest	(1,004)	(7,823)	(4,520)	(124)	1,773
Basic Earnings per Share	(6.86)	(53.50)	(30.91)	(0.85)	12.13
Diluted Earnings per Share	(6.86)	(53.50)	(30.91)	(0.84)	12.09
FINANCIAL POSITION
Working Capital	(107)	795	7,164	9,188	8,832
Total Assets	2,244	12,231	18,446	24,833	23,339
Total External borrowings	333	585	5,142	5,532	4,739
Trade Receivables	300	815	4,339	7,008	5,254
Shareholders Equity	1,086	1,806	11,247	15,753	15,182
OTHER DATA
Net Fixed Assets excluding Goodwill	316	507	4,000	6,190	5,948
Goodwill on Acquisition	-	-	2,640	3,283	3,063
Goodwill on Consolidation	523	539	2,371	2,384	2,315

Total cost during the year stands at Rs.2,324 Mn. Total cost as a proportion of revenue increased 8.37% from 114.53% in 202122 to 122.90% in 2022-23. Direct Costs are those that are required to be incurred for purposes of completing the contractual obligations entered with customers - Employee and Contracted Resources compensation costs as well as technology licenses, subscriptions, and such related costs necessary for the delivery of contracted services.

	FY23		FY22 Revised
Particulars	Amount (Mn)	% of Total Income	Amount ( Mn)	% of Total Income	Change %
Employee Costs	479	25.33	3,082	47.23	(84.46)
Other Direct Costs	830	43.89	1,929	29.56	(56.97)
TOTAL DIRECT COST	1,309	69.22	5,011	76.79	(73.88)
SGA Expenses	772	40.82	1,415	21.68	(45.44)
Amortization of Capitalized Software Costs	61	3.23	265	4.06	(76.98)
Depreciation	107	5.66	491	7.52	(78.21)
Finance Expenses	75	3.97	293	4.49	(74.40)
TOTAL COST	2,324	122.90	7,474	114.53	(68.91)

Employee cost

The Companys employee benefits cost reduced 84.46% from Rs. 3,082 Mn in 2021-22 to Rs. 479 Mn in 202223. As a percentage of the total cost, employee cost was 20.61% in 202223 against 41.23% in the previous year. Employee costs have come down significantly as an outcome of proactively delayering the organization.

Depreciation

Depreciation and amortization expense for the Company reduced 77.78% from Rs. 756 Mn in 2021-22 to Rs. 168 Mn in 2022-23, accounting for 8.88% of the revenue in 202223 compared to 11.58% in 202122. While write-off of purchased intangibles and tangibles are treated as depreciation, IP developed by the company is amortized.

Finance cost

Finance cost comprised of interest charges on credit facilities availed by the company as well as the related expenses like processing charges.

Interest costs reduced in 2022-23 by 74.40%, as it stood at Rs. 75 Mn against Rs. 293 Mn in 2021-22.

Taxation

Total tax liability for the year stood at Rs. 16.80 Mn against Rs. 48.45 Mn in 2021-22. The tax rate for the

Company stood at -3.71% during the year under review.

Earnings per share

There is an increase in the companys earnings per share from Rs. (53.50) per share in 2021-22 to Rs. (6.86) in 2022-23.

Share capital

The equity share capital of the Company comprised Rs. 146.23 Mn equity shares of Rs. 1 each. The equity share capital of the Company during the year under review remained stable.

Reserves and surplus

Reserves and surplus of the Company reduced 43.50% from Rs. 1,664 Mn as on March 31,2022, to Rs. 940 Mn as on March 31, 2023. The reduction was owing to reduced retained earnings derived on account of loss during the year.

Borrowings

Borrowed funds of the Company reduced by 43.08% from Rs. 585 Mn as on March 31, 2022, to Rs. 333 Mn as on March 31, 2023, largely due to the debt repayments. During the year, the companys long-term borrowing stood at Rs. 122 Mn as on March 31, 2023, as against Rs. 284 Mn as on March 31, 2022. The Companys gearing stood at 0.31 in 2022-23 compared to 0.33 in 2021-22.

Working capital

Trade receivables as on March 31, 2023, stood at Rs. 300 Mn against Rs. 815 Mn as on March 31, 2022, showing a reduction of 63.19%. Current investments of the Company is nil as on March 31, 2023 and March 31, 2022. The total Current Liabilities have decreased from Rs. 5,243 Mn as on March 31,2022 to Rs. 1,009 Mn as on March 31, 2023. The trade payables of the company reduced from Rs. 288 Mn March 31,2022 to Rs. 236 Mn as on March 31, 2023.

Cash and bank balance

The cash and bank balance decreased by 62.03% as it stood at Rs. 112 Mn as on March 31,2023 compared to Rs. 295 Mn as on March 31, 2022.

Ratio Analysis

In accordance with the SEBI (Listing Obligations and Disclosure Requirements 2018) (Amendment) Regulations, 2018, The Company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key sector- specific financial ratios. The Company has identified the following ratios as key financial ratios:

	Ratio	FY23	FY22 Rev	Formula
(i)	Debtors Turnover	3.39	2.53	Turnover / Average Trade Receivable
(ii)	Interest Coverage Ratio	(3.70)	(1.66)	EBIT/Interest Expense
(iii)	Current Ratio	0.89	1.08	Current Assets / Current Liabilities
(iv)	Debt Equity Ratio	0.31	0.32	Net Debt / Shareholders Equity
(v)	Operating Profit Margin (%)	-10.05%	1.55%	Operating EBIDTA / Operating Revenue
(vi)	Net Profit Margin (%)	-24.85%	-12.69%	PAT / Operating Revenue
(vii)	Return on Networth (%)	-32.50%	-12.69%	PAT / Average Net worth
(viii)	Inventory Turnover Ratio	NA	NA	NA

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios are as follows:

Interest Coverage Ratio - There has been a decline in the interest coverage ratio (3.70) in 2022-23 against (1.66) in 2021-22.

Operating Profit Margin (%), Net Profit Margin (%) and Return on Net worth (%) - There is a significant decline on the companys annual performance.

Cash flow statement

The cash flow statement comprises cash flow from operations and cash flow from investing / financing activities. The cash flow from operations indicates the health of the core business of the company. Cash flow from operations has always been positive in the last 10 years and despite exceptional circumstances it remains positive for the year under review.

As with any CRO, the company needs to invest upfront to generate prospective revenues. The cash flow from investment and financing activities indicates long-term planning. Our divestitures have enabled us to manage liquidity, extending runway to tide over this storm. The Company invests its cash, which otherwise would have been available as free cash, in growing the business organically and inorganically.