plethico pharmaceuticals ltd Management discussions

Management Discussions And Analysis

Company Profile

Plethico Pharmaceuticals Limited is a leading global healthcare / pharmaceutical company with strong emphasis on the herbal and nutraceuticals segment. The company which was established in 1991 i s focused on manufacturing, marketing and distribution of p h a rma ce uti cal a n d al l i ed h ea l thca re p rod u cts i n th e nutraceuticals and herbal segments in both domestic and global markets. Plethico operates in the segments of sports nutrition, confectionary and OTC in India. It is also a leading player in the Commonwealth of Independent States (CIS), Africa, South East Asia, Latin America and in the GCC for its Travisil range of p rod u cts. In 2 008, Pl e th i co acqui re d Natrol, a l ea d i n g manufacturer and marketer of branded nutritional products in the United States.

The consolidated revenue of Plethico in year 2014 (15 months)stood at USD348million i n comparison to USD314million (12 months). The nutraceutical segments share of revenue was 49% while the herbal segments contribution was 35%. The balance 16% was accounted by allopathic segment which included trading sales.

The group today has a portfolio of over 200 branded products sold in more than 60 c ountries.

Vision:

To be amongst the top 10 international herbal / nutraceutical player by creating a global Plethico healthcare brand, drawing upon the rich heritage of the Indian system of herbal medicine. Industry Overview:

Nutraceuticals are broadly categorized as products that supplement the diet providing nutrition and health benefits for prevention and treatment of diseases in addition to the basic nutritional value found in foodstuffs.

Nutraceuticals are primarily used in functional foods and dietary supplements. The nutraceutical ingredients are natural, bioactive or chemical compounds that have health promoting properties. The potential of maintaining health and normal body functions, as well as its utility as adjuvant supplements for managing various chronic and lifestyle related diseases, are the prime reasons for the increasing interest of present generation in the nutraceutical space.

There has been a paradigm shift seen in the consumers preference from synthetic ingredients towards natural and organic foods, beverages and supplements. Present days consumers are more informed, and this could be attributed to current day media, which keeps consumers updated with the latest scientific developments in health and wellness. The move has been more towards food products that are obtained from natural non GMO (ge netically modified organisms) extracts. Consumers have become more conscious and aware about their health with the perception that proper intake of nutritious diet prevents the onset of chronic diseases and also that dietary supplements serve the purpose of maintaining the functioning of body systems and serve as an aid for performance enhancement and disease prevention. Nutraceuticals can be broadly defined as foods or food derived substances in extracted form, which claim to provide medicinal and health benefits. The term is so broad that functional foods/beverages, dietary supplements and any other type of food that provides health benefits fit into the nutraceutical category. However, we have restricted the term nutraceutical to functional foods and beverages and dietary supplements for reference purpose.

The global nutraceutical market has seen maximum growth in the last decade. While, nutraceuticals as an industry emerged in the early 1990s, 2002-2010 has been the key growth period for the industry. From 1999 to 2002, the nutraceutical industry grew at an Annual Average Growth Rate (AAGR) of 7.3 percent, while from 2002 to 2010, the AAGR d oubled to 14.7 percent. The market reached $142.1 billion in 2011 and is expected to reach $204.8 billion by 2017, growing at a CAGR of 6.3%.

Rising health concerns, improving economic conditions, growth of key demographics and an increased focus on e-commerce among consumers factors into specific markets success. The industry is expected to maintain comparable growth till 2015 driven by growth from India, China and Brazil. Asia-Pacific (including Japan) is expected to have the second largest market share after North America by 2017.

State of the market

On the global front, US and Japan are the strongest markets for nutraceuticals owing to the consumer acceptability in these markets. However, with increasing awareness, developing nations of India, China and Brazil are showing huge potential for nutraceuticals. Also, Germany and Israel have developed as key innovation hubs of the nutraceutical industry.

North America

Growth in the global nutraceutical market is attributed to the growth in the dietary supplement segment with North America having the highest market share for nutraceutical product market, standing at USD56.4 billion in 2011 and a growth rate of more than 6% during 2007-2011.

Growth in the North American region is primarily supported by the consumers who are more conscious about health and food habits demanding specific ingredients in the products they consume, leading to customization of nutraceuticals for different target groups. Also the companies in this domain are looking at diversification of their products, preferring more of natural nutraceutical ingredients in their product offering, due to the increasing consumer demand for all-natural, non-modified functional ingredients.

India

The Indian Nutraceutical Market was valued at USD1.48bn in 2011, roughly 2 percent of the global nutraceutical industry.

The very existence of alternative medicine with a strong consumer belief in it is the key to capitalizing on the Indian nutraceutical space after incorporating the traditional herbal ingredients that are usually ayurvedic into the nutraceutical portfolio. On the other hand, awareness needs to be created about the high end nutraceutical ingredients which are quite limited amongst the Indian consumers, in order to have the expansion of the acceptable product portfolio. In India, functional foods are expected to realize increased consumption over the next five years resulting in functional foods and beverages garnering greater product share in the market as compared to dietary supplements. The total Indian nutraceutical market is expected to be around USD2731million (USD 2.73bn) by 2016.

Herbal and Ayurvedic Market

Herbal medicine involves the use of any or all of the different parts of plants (roots, leaves, stems and seeds) to treat illnesses and maintain health. The herbal medicines are extracted from leaves, petals and roots of plants and are often a complex mixture of different phytochemicals.

Right from the ancient times, India has a rich heritage of usage of Ay urveda & herbal medicines. Herbal industry at times is clubbed with the nutraceutical industry in the sense that primary and secondary produce viz. medicinal plants and extracts respectively are shipped to European and other places either for final formulation preparation or for extraction or intermediate preparation. Herbal medicine is being practiced in various countries all over the world for centuries but has only recently started getting legal acceptance by the global regulatory authorities as complimentary and an alternative system of medicine) however, they demand the validation of the claims of clinical efficacy of these products.

Trends

Major trends influencing the market include growing competition leading to industry consolidation, maturing markets in the developed regions, food and pharmaceutical players flooding the market and volatile conditions in the herbal supplements market. The factors that drive this market include aging population, affluence of working population with growing interest in healthy diet and reducing affordability of sick care that is driving consumers towards wellness.

The positive trends for the industry are facilitated by increasing physician awareness, media penetration and increased accessibility due to newer distribution channels.

The world, which due to technological advances, developed medicines which are quick acting, potent and capable to treat and provide symptomatic relief, has now started to feel the need for longer lasting and more fundamental cures for their health problems. Attention is now being shifted from relief to preventive cure giving rise to the intent to go back to nature and use natural materials and methods of ancient times.

Nutraceutical market is becoming increasingly competitive with the entry of major food and pharmaceutical companies, including Kellogg, Heinz, Quaker, Uniliver, Royal Numico, Dupont, Novartis, Abbott, Amway, Cargill, Hormet, GlaxoSmithkline, Warner-Lambert, Wyeth and others. The Indian nutraceutical market is dominated primarily by pharmaceuticals and FMCG co mpanies with very few pure-play companies. Pharmaceutical and FMCG players active in the nutraceuticals space have diversified by introducing product extensions and developing variants under existing brand names.

Pharmaceutical companies are employing state-of-the-art technologies to improve therapeutic value of natural substances derived from herbal and other sources. One of the key ingredients to rapidly expand and succeed in this arena will require the players to develop new competencies by way of different and better dosage forms for the Nutritional De livery (NDDS).

Quality standards and regulations are becoming more and more stringent similar to that of pharmaceutical markets. Some of the regulations of recent times include the GMP (Good Manufacturing Practices) Act of UK introduced in 2007 and the Dietary Supplement Health and Education Act (DSHEA) of US in 1994. The latter lays down regulatory guidelines for the manufacture, marketing and distribution of dietary supplements.

DSHEA also regulates the claims made by dietary supplement manufacturers and retailers. What will drive the Nutraceutical Market in the future?

• Investment in awareness programs to educate the public about the ingredient

• Branding, to differentiate the product and position it as a high quality, effective and value for money offering

• Investment in Research and development to develop innovative products, packaging and delivery mechanisms

• Investment in verifying health claims of the products

• Investment in market research to tune in to consumer behavior

• Customization of the product offering to suit the target audience to increase penetration

• Synergistic Mergers and Acquisition to enter new geographical and product markets

• Increased advertising and promotional activities

Plethico - Core Business

Overview of brands/products

Plethico group has two major lines of business- Nutraceuticals and Herbal finished formulations. The Company also engages in All opathic finished formulation as well as contract manufacturing/ toll manufacturing.

Plethico has its own brands in the herbal wellness space like Travisil, Mountain Herbz, Actifresh and Travopassit selling mostly in the emerging markets like CIS, SEA and Africa. Similarly, it has alarge portfolio ofNutraceutical wellness brands like MRI, Prolab, and Coachs formula in the sports nutrition.

Natrol and its subsidiaries (collectively referred to as Natrol) manufacture and market branded, high-qualitydietary supplements, herbal teas and sports nutrition products under seven primary brands: Natrol, MRI, Laci Le Beau, NuHair, ShenMin, P romensil and Prolab. The majority of Natrols dietary supplements are sold under the Natrol brand. The Natrol brand focuses on supplements that are in high demand as well as specialty niche and proprietary formulations. These supplements include vitamins, minerals, herbal products and specialty combination formulas that contribute to an individuals physical and mental well-being.

Natrols second largest brand umbrella is MRI. MRI develops markets and distributes sports nutrition products including NO2, Black Powder, CE2, Pro-Nos, HSP Active, WAR and Anabolic Switch. The Prolab sports nutrition line of products is targeted at body builders and health conscious individuals seeking a high degree of physical fitness. Prolabs products include supplements designed to help these individuals gain or lose weight as well as improve muscle mass and muscle definition.

Sales:

Plethico group sells largely into International markets like US, Europe including CIS, Africa, Asia Pacific, Middle East and LatAm. It also has presence in India.

US

Plethico Group has its presence in the US through NatrolI nc., which sells its products in the US under the brand name Natrol through multiple channels of distribution that reach customers through mass-market drug, warehouse/club stores, grocery store chains, health food stores, fitness centers, internet retailers and independent catalog companies covering more than 40 countries through international distributors involving Plethicos distribution capabilities. Natrol products have more than 54,000 points of distribution.

Plethicos super specialty sports SBU MRI, sells its products mainly through health nutrition outlets such as GNC (General N utrition Corporation), Vitamin Shoppe, NBTY, Lifetime Fitness, 24 H our Fitness, internet outlets that focus on sports nutrition and distributors.

Prolab products are sold primarily through sports nutrition retail stores, fitness centers, websites, health-food stores and internationally, through designated distributors. The NuHair brand of hair product is sold exclusively through the mass market channel of distribution in the US while the ShenMin brand of hair products is sold exclusively within the health food channel of trade.

Asia Pacific, Latin America and Middle East

This region comprises of Latin American countries like Chile, Mexico, Trinidad & Tobago, Barbados, Colombia, Bahamas, Bermuda, Brazil and several other countries. Asia Pacific countries like Taiwan, Korea, Philippines, Myanmar, Cambodia, Vietnam, Australia, Singapore, Indonesia and other Countries and Middle East countries like Kuwait, UAE, Iran, Lebanon, Bahrain, Turkey, Israel and other Countries The principal products are herbal and nutraceuticals, specifically Natrol, Prolab, Travisil and Coachs Formula ranges.

CIS

The Commonwealth of Independent States (the "CIS") SBU focuses on marketing and distributio no ther bals/Nutraceuticals/allopathic formulationsin Russia, Kazakhstan, Ukraine, Mol dova, Kyrgyzstan, Azerbaijan, Belarussiaand several other countries including the Eastern European countries. Its principal products are Travisil, Prolab, Natrol, Mountain Herbz and Effertabs range of products alongwith various other herbal and allopathic formulations, all of which require significant sales and marketing efforts. The CIS market is characterised by typical long credit cycles, with most purchases made on the basis of credit rather than cash payments. During the period 2004-06, the company acquiredstakesin marketing and distribution companies operating under the name of Rezlov as separate legal entities having presence in Russia, Kazakhstan, Mol dova to mention a few. (The "Rezlov group of companies"). The Companys investment in the Rezlov group of companies enabled it to extend its geographic presence as well as provided it with a strong distribution platform. Other benefits included better recovery, thorough product registration & filings in the CIS.

Due to the extremely cold winters affecting the CIS during the period October to March, there is a strong seasonal factor in the CIS SBU shipm ents and sales. This period is the peak period for colds, coughs and related ailments leading to a high demand for the companys products in related category. However, the extreme weather conditions in the CIS neces sitate shipments to be made in advance i.e. during February to August.

Africa

The countries where Plethico is present are Ivory Coast, Gabon, Kenya, Uganda, Congo, Nigeria, Ghana, Togo, Benin, South Africa to mention a few. The major products include Travisil, Therasil, Natrol, Prolab and Coachs Formula. The Company is one of the leading Indian companies in terms of reach in French West Africa.

India

The Companys current activities in India are broadly divided into:

- Consumer Product Division

- Contract manufacturing / Toll Ma nufacturing

The Company has been selling one of its globally recognised brand "Travisil" in India in both syrup and lozenge form as well as other products such as "Doctor Relief" foot powder and a mouth ulcer gel. It also engages into selling sports nutrition products under Coachs formula, MRI and Prolab.

Herbal formulations including extracts in own brand as well as private labels are sold.

Plethico Pharma was formerly engaged in contract manufacturing activity, but no longer pursues any material activity in this segment.

Brand Building

For over a decade, Plethico group has followed a focused strategy of building brands. The company uses various advertising vehicles such as media, modes of travel, in-store promotion, doctor detailing, conferences, medical symposiums and exhibitions in the respective countries of operations.

In the US, its core strategy has been to build brands within the channels of distribution that are appropriate for each brand and to develop increased brand awareness and strong brand recognition among consumers seeking products with a reputation for quality.

A suitable illustration is the "MRI" range, which is positioned as

a premium brand within the sports nutrition segment worldwide and its brand identity is underpinned by a reputation for innovative science.

Trademark and Patents

The company regards its trademarks, patents and other proprietary rights asvaluableassets and believes that protecting the key trademarks is crucial to its business strategy of building strong brand name recognition. Plethicos policy is to pursue registrations for all of the trademarks associated with all key products.

Natrol has US patent for its Kavatrol product as well as US patent relating to amino acid product, SAF. MRI holds a number of patents most of which are related to products that contain Alpha Lipoic Acid.

Ma nufacturing Units

The manufacturing facilities of Plethico in India are located in the state of Ma dhya Pradesh.

The Kalaria plant located in Indore is WHO-GMP certified and is also approved by other regulatory bodies from Africa, CIS, SEA, FWA, GCC etc. The plant had approval from UKMHRA and TGA Australian authorities for Oral Solid dosage forms area - Tablets & Capsules which has expired and is under renewal consideration. The area is also equipped with manufacturing of Effervescent Tablets.

The Kalaria plant has 3 Ma nufacturing blocks:

1 Herbal Block-Tablets, Capsules, Liquid orals with special premises for Lozenges / Med icated Lozenges products. This is being geared up to comply with the 21 CFR 111, D ietary supplement Good Ma nufacturing Practices (GMP) and THMP registration guidelines (Traditional Herbal Medicine Product) /EU-GMP in c oming years.

2 Allopathic Block- Tablets, Capsules, Liquid orals, Injectables. Allopathic block is expected to comply with the UKMHRA (Injectable Unit), USFDA, TGA, ANVISA, PIC(s) & SA-MCC.

3 Nutraceuticals-Powder, Granules, Tablets and Capsules Manglia plant at Indore is WH O-GMP certi fied having manufacturing facilities for chewables, coated tablets, hard gelatin capsules, and dry powder suspension, dry powder for injection with an isolated block for manufacturing Antibiotics products (Cephalosporins).

The company plans to make suitable up gradation of this plant and get the same approved through WHO-Ge neva Prequalification program for Antimalarials and Anti-Tubercular products. There are plans to get the approval for the isolated block at Manglia from SA-MCC and also some other CIS/SEA regulatory Authorities.

Through the extensive research and development activity carried out by the company, there are 7 products that have been developed. The company would commercially exploit the opportunity arisen through the products developed by setting up a ma nufacturin g facility going forward through Plethico International Limited. These would cater to the demand of high end markets of US and E urope to mention a few.

Natrol - Chatsworth Plant

Natrol manufactures most of its tablets and capsules at its 94,000 square foot manufacturing facility and headquarters located in Chatsworth, California. In June 2009, thi s facility was certified new cGMP compliant by the NPA (Natural Products Association).At this facility, tablets and capsules are manufactured, which account for the vast majority of Natrols supplement sales. Natrols liquid products, powders, soft gels and herbal teas are outsourced to third party manufacturers.

Raw Materials

The basic raw materials required to manufacture the Companys products are a combination of herbal ingredients and bulk drugs comprising both active and non-active ingredients. Active raw materials are the herbal/chemical compounds that are needed to produce the desired medicated or therapeutic effect in any herbal/pharmaceutical product. Non-active materials are all other materials used in the manufacture of such products. The active raw materials are required in bulk quantities whereas the non-active ingredients are required in small quantities. Majority of the companys raw materials are available in India. Most of the purchases are made on unsecured credit basis ranging between 90 and 120 days without any letters of credit. There is currently no supply shortage in most of the raw material items.

Natrol obtains its raw materials from third-party suppliers. Many of the raw materials used in Natrols products are harvested internationally. Natrol does not have substantial multi-year contracts with suppliers committing such suppliers to provide the materials required for the production of our products.

Competition Export markets

In the herbal products segment, formulations of German and US origin dominate the market while products from the rest of the world, including those of the Company and other Indian companies, compete for the balance of this market. The competition in this market is compounded by low cost producers from South East Asia and by- products based on the Chinese alternative system of medicine. In the CIS, the Companys major competitor for herbal cough and cold related products is a midsized Indian player. For food supplements, the Companys principal competitor in the CIS is also a noted mid-sized Indian player, which has a wide range of food supplement products competing with many of the Companys products. The competition in the food supplements segment is again from smaller Indian players, while it is the US companies that are active in the sports supplements segment. In the allopathic products segment, the Company faces competition for its effervescent products from UPSA La boratories (France), which is marketing a product similar to one of the Companys therapeutic products. For its other allopathic products, the Company faces intense competition from a large number of generic pharmaceutical companies.

Domestic markets

Following its 2003 exit from the ethical segment in India, the

Company only operates domestically in the OTC market for consumer products. For sports nutrition products, the Company faces competition from international companies, particularly those from the US and due to the semi-regulated nature of the market, even from relatively small scale and informal producers. For the OTC segment, the Company faces competition from products like Vicks and Strepsils.

Natrol and US markets

Th e di etary sup p lement industry is highl y competitive. Competition is based primarily on price, quality and assortment of products, customer service, marketing support and the availability of new products. However, price is a key variable. Natrol competes by positioning itself as a supplier of quality products, often with unique compositions.

Natrols principal competition in the health food store distribution channel comes from a limited number of large nationally known manufacturers and many smaller manufacturers of dietary supplement sales viz. health and natural food store chains, drugstore chains, mass merchandisers and supermarket chains. In the mass-market distribution channel,Natrols principal competition comes from broad line manufacturers as well as major private label manufacturers. In addition, several large pharmaceutical companies compete with the nutritional supplement companies. Competition from such companies is strong because these companies have greater financial and other resources available to them and possess manufacturing, distribution and marketing capabilities far greater than Natrol.

Business strategy:
Focus on key brands and leverage on cross-selling opportunities	• Develop a network of strong brands and agile businesses in Nutraceutical, Herbal and Allopathic segments in identified geographies
	• Focus on brands with high relative market share and strong consumer franchise
	• Continue to focus on marketing efforts in India for herbal and allopathic products and significantly increase brand awareness campaigns for nutraceutical products
	• Cross sell products and optimise product portfolio
Successfully leverage	• Acquire products, brands and businesses that are complementary to our existing product line.
Acquisitions and alliances	• Expand into new markets via the inorganic route which could be a manifold approach.
	• Expand distribution capabilities in the CIS, Europe and Asia Pacific
Strong focus on distribution network	• Leverage strong distribution network to introduce herbal products in the US SEA, Lat Am and Europe by 2020.
	• Integrate multi-location production facilities to capture cost efficiencies
Manufacturing	• Exploit locational advantages and tax holiday schemes
	• Decrease outsourced production
	• Emphasis on quality and adherence to regulations
Financial	• The Company is looking to reduce its debt burden from its current levels
Management	• Receivables management and reduction of receivables period from CIS and Third Front markets

Capability to deliver results

Diversified product portfolio & Recognised brands

The company has a portfolio of over 200 brands including recognized brands like Prolab, Natrol, Travisil& host of wellness products. Its presence is across a wide range of mature and high-growth nascent product categories such as sports nutrition, food supplements, mouth fresheners, cough and cold medications and lifestyle diseases. The Company has an established presence in markets with high growth potential for lifestyle /nutraceutical products such as India, Middle East and the emerging economies of LatAm & South East Asia.

Large distribution network

A critical success factor for the Company has been the emphasis on building a strong global distribution network. Plethico has a wide marketing and distribution network in the US, Russia and other CIS countries, French West Africa and Cambodia. The acquisition of Natrol enables the Company to access the US market with its existing products. Natrol has strong relationships with nearly every retail establishment in the US in all channels of trade. These channels extend from Wal-Mart, the largest American retail store, drug chains including Walgreens, specialty chains that include GNC and grocery outlets to smaller stores including internet retail.

Engaged management team

The companys board is well represented in experience and skill sets in the context of the industry and managerial skills. The entrepreneurial nature of the management is well illustrated with the company being the pioneers in the organized sports nutraceuticals industry in India.

State of art manufacturing and stringent quality standards

The company has awell-definedmodern manufacturing set up which can cater to multiple market regulation requirements. This is demonstrated in the following:

- 2 manufacturing facilities in India which are cGMP compliant. Kalaria facility was UKMHRA & TGA accredited which has now expired and is under renewal consideration.

- 1 manufacturing facility in the US certified by industry organization as US cGMP compliant.

Strong brand recognition

The Company has established severalbrands of repute like Travisil, Coachs Formula, Prolab, Natrol, Actifreshand many others in different parts of the world. The success has come out of focused brand marketing and a conscious strategy of "feet on the street." Natrols core brands are well established in the US market. The Natrol brand is almost thirty years old and holds leading national positions in many key niche markets such as Melatonin, 5-HTP, Carb Intercept, Acai Berry. MRI is widely recognized as a science-based leader in sports nutrition technology. The NuHair and ShenMin brands are one of the leading natural alternatives in hair enhancement products.

Prolab is recognized both within the US and internationally for its weight gain and weight loss sports products. Laci Le Beau is one of the leading diet tea brands within the health channel of trade.

Successful acquisition synergy

The companys success in deriving synergy from its acquisitions and partnerships is evident in the continuing growth of Natrol and the distribution leverage from the investments in CIS based firms. Natrol has also profited from acquisition of brands and manufacturing rights. The above reflects well on the companys ability to venture and manage inorganic growth initiatives, which is slated to be a key success factor governing the increasing consolidation trends in the industry.

Threats, Risks and Concerns

In the pharma / nutraceutical industry, the risk and regulatory concerns span the full product life cycle — from drug development, testing, manufacturing, and marketing. The company carries out a detailed risk management exercise for identification of risks and putting in place corrective measures and controls to mitigate these risks.

Lack of awareness among consumers

According to Research on Indias Healthcare Industry series, 45% of Indian consumers have no idea or a vague idea about nutraceuticals and their benefits whereas a major portion of the balance 55% have a mixed level of understanding about the category. In some instances, the high prices of nutraceuticals and perception regarding credibility of nutraceuticals (Scientific studies and clinical trials supporting safety and efficacy claims) and Herbal formulations not being precise parameter driven unlike Synthetic drugs could have led to the alienation. Moreover, the Indian market is majorly prescription driven and there is no secular trend in these being regularly recommended by the physician.

Competition from global and Indian manufacturers and indirect competition from substitutes

The nutraceutical industry is highly competitive. On the one hand, there could be competition from countries that offer low cost manufacturing such as China, Korea and Taiwan. Low barrierstoentry and nascent regulations in the developing markets have lead to a highly fragmented nutraceutical industry with lot of small and in some instances, spurious manufacturers. The latter actually affect the consumer confidence by supplying sub standard products.

On the other hand, the companys products compete with a wide variety of commercial weight-loss programs, pharmaceutical products, self-help diets, supplements and meal replacements.

New diets or pharmaceutical solutions could put the company at

a competitive disadvantage.

The food industry is highly subjective and influenced by many factors. Another new diet could sweep the nation or consumer preferences could change, which may impact existing business growth.

The companys business is subject to regulatory and legislative restrictions but there is an absence of clear regulatory guidelines.

Indian nutraceutical industry is regulated by multiple laws. But there is a lack of clarity on setting up of manufacturing units or in product categorization. In such a situation, availing subsidies, quality and price control become major issues.

Drug production and marketing are highly regulated by a variety of federal, state and local agencies in most countries. Additionally, selling practices are regulated by competition authorities in the United States and abroad. Some of the Governments may also desire to play a more active role in regulating market access, particularly for high-cost medicines. The Government of India through its Drugs (Prices Control) Order, 1995 (DPCO) imposes price controls for speci?ed pharmaceutical products under certain circumstances.

Third parties may infringe on the companys brand and other intellectual property rights, which may have an adverse impact on our business

The company relies on a combination of trademark, copyright, trade secret, patent and other intellectual property laws and confidentiality procedures to establish and protect proprietary rights, including the various brands. The precautions may not prevent misappropriation of intellectual property, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights fully.

The companys results of operations may decline as a result of a downturn in general economic conditions or consumer confidence

A downturn in general economic conditions or consumer confidence and spending in any of our major markets could result in people curtailing their discretionary spending, which, in turn, could lead to a decrease in product sales. Any such reduction would adversely affect our results of operations.

The sale of ingested products involves product liability and other risks

Like other distributors of products that are ingested, the company does face an inherent risk of exposure to product liability claims if the use of our products results in illness or injury. The food products sold in the U.S. are subject to laws and regulations, including those administered by the USDA and FDA that establish manufacturing practices and quality standards for food products.

The company may not successfully make acquisitions or enter into joint ventures and may not be successful in realizing the benefits of such businesses.

The company may not realize the anticipated benefits of acquisitions and joint ventures or may experience difficulties in integrating any acquired companies and products into the existing business; attrition of key personnel from acquired businesses; significant charges or expenses; higher costs of integration; or unforeseen operating difficulties.

Internal Control Systems

The Company, in consultation with its Statutory Auditors, periodically reviews and ensures the adequacy of Internal Control Procedures for the orderly conduct of business and also includes a review to ensure overall adherence to management policies and applicable laws & regulations. The Companys internal audit team carries out extensive audits throughout the year, across all functional areas, and submits its reports to the Audit Committee of the Board of Directors. Cost control measures, especially on major cost determinants, are continuously being implemented. The Company also has a proper and adequate Internal Control System to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition, and those transactions are authorized, recorded and reported correctly. The Company will continue to take substantial measures to ensure compliance through routine internal and external audits.

Human Resources Development

During the year under review, the Company continued with its emphasis on Human Resource Development as one of the critical areas of its operations. Executives and officers of the Company having high potential in the field of Finance, Accounts, Marketing, International Business, Production, Quality Control, Quality Assurance and New Drug Development were regularly met at all the plant locations as well as the head office with a view to update their knowledge and skills and keep them abreast of the present scenario for meeting the challenges ahead.

We have the highest degree of intellectual and technical milieu which is a perennial one at the company. The Company organizes periodical external and internal trainings to encourage and develop vital human resources. All the efforts are aimed to develop and nurture the entrepreneurial attitude and skills among the employees.

Company viewpoint

The company is cognizant that its future success depends on the ability to continue to develop and market new products and enhance existing products on a timely basis to respond to new and evolving customer demands, achieve market acceptance and keep pace with new nutritional developments. Hence, the emphasis has always been on product development and brand building. The companys research and development efforts going forward will be more targeted by monitoring developments within the dietary supplement industry. The company has been able to align its product mix and place more emphasis on exports to off-set the lower consumer awareness as well as the overall impact of moderate prices in domestic market on the top and bottom line of the company. Additionally, the company is focusing on de-controlled products to maintain profitability. While concentration on cough and cold segment continues, the company intends to diversify its product and geographical spread to mitigate any risk arising from such concentration. To date, the company has not been a party to any product liability litigation. The company is not aware of any instance in which any of their products are or have been defective in any way that could give rise to material losses or expenditures related to product liability claims. The companys legal staff reviews all label claims and manufacturing process to ensure that the company is in compliance with Federal Drug Administration and Federal Trade Commission rules and regulations.

The company adheres to environmental laws and regulations that seek compliance with a number of permits, authorizations and approvals and to maintain and update training programs and safety data regarding materials used in various processes. The companys manufacturing operations presently does not result in generation of material amount of hazardous or toxic substances.

Financial Performance

Plethicos revenues on consolidated basis has grown up by 1.52% to Rs. 16787.46 million (for 15 months Rs. 20984.33 million), the net profit after tax on consolidated basis has however declined by 12.75% to Rs. 885.49 million (for 15 months Rs. 1106.86 million).EBITDA margins for the year ended at 15% against 11% for CY12, an increase of 400 bps. The results under review is for 15 months period and annualized for the aforesaid purpose.

The details of the financial performance of the Company appear in the Balance Sheet, Statement of Profit and Loss and other financial statements appearing separately. Please refer the Directors Report for highlights.

Inspite of the challenging market conditions, the Company was able to maintain its client base and market share of various products across different geographies. The Company continued its efforts towards geographic diversification both by exploring new markets and cross selling of products across geographies which to a great extent yielded the desired results. We believe that these efforts would continue and the focus of the Company would be to constantly devise ways and means of rewarding the shareholders.

Disclaimer

The Statement made in this report and those appearing elsewhere may be business outlook that set forth anticipated results based on management plans and assumptions. These statements are likely to address the companys growth strategy, financial results, product development, product approval, product potential and development programs. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks, uncertainties materialized or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Some of the factors that could cause actual results to defer materially are stated in the section "Threats, Risks and Concerns."