Accretion Pharmaceuticals Ltd Management Discussions

The following discussion of our financial condition and results of operations should be read in conjunction with our restated financial statements for the period starts from April 01, 2024 to July 20 2024 and for the period ended March 31, 2022, March 31, 2023 and March 31, 2024, included in this Draft Red Herring Prospectus, prepared in accordance with the Companies Act and Indian GAAP and restated in accordance with the SEBI ICDR Regulations, including the schedules, annexure and notes thereto and the reports thereon, included in the section titled - "Financial Statements" beginning on page 229 of this Draft Prospectus. Our Companys Financial Year commences on April 1 and ends on March 31 of the following year, so all references to a particular Financial Year or Fiscal are to the twelve months ended March 31 of that year. Indian GAAP differs in certain material aspects from U.S. GAAP and IFRS. We have not attempted to quantify the impact of IFRS or U.S. GAAP on the financial data included in this Draft Prospectus, nor do we provide reconciliation of our financial statements to those under U.S. GAAP or IFRS. Accordingly, the degree to which the Indian GAAP financial statements included in this Draft Prospectus will provide meaningful information is entirely dependent on the readers level of familiarity with the Companies Act, Indian GAAP and SEBI ICDR Regulations. This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those set forth in "Risk Factors" and "Forward-Looking Statements" beginning on pages 34 and 21 of this Draft Prospectus respectively. In this section, unless the context otherwise requires, any reference to "we", "us" or "our" refers to Accretion Pharmaceuticals Limited, our Company.

Business Overview

In the year 2012, our Promoters Mr. Harshad Nanubhai Rathod, Mr. Vivek Ashok Kumar Patel, Mr. Mayur Popatlal Sojitra and Mr. Hardik Mukundbhai Prajapati, came together to establish a pharmaceutical manufacturing unit, with vision to provide health care products that match international quality standards at competitive price. Thus, the foundation of "Accretion Pharmaceuticals" was laid down, which was started as a Partnership Firm under the Partnership Act, 1932 ("Partnership Act") in the name and style of "M/s Accretion Pharmaceuticals", pursuant to a deed of partnership dated December 18, 2012. Our manufacturing facility which is currently located at 29 Xcelon Ind Park 1, B/H, Intas Pharmaceuticals, Vasna Chacharvadi, Ahmedabad, Sanand, Gujarat 382213, commenced its manufacturing operations in year 2014. Thereafter, pursuant to a resolution passed by the partners of M/s Accretion Pharmaceuticals on October 16, 2023, the Partnership Firm was converted into a Limited Company under Part I (Chapter XXI) of the Companies Act, 2013 in the name of "Accretion Pharmaceuticals Limited" and a certificate of incorporation dated November 29, 2023 was issued by the Registrar of Companies, Central Registration Centre, for and on behalf of the jurisdictional Registrar of Companies.

The Corporate Identification Number of our Company is U21004GJ2023PLC146545

Presently our Company is engaged in the business of manufacturing, processing, trade, sale, purchase, import, export, assemble, distribute, formulate, develop, consult, test and deal in all kind of Drugs, Pharmaceuticals, Ayurvedic, Nutraceutical, Pesticides, Dyestuffs, drugs, nutriments, nutraceuticals, dietary supplements, allopathy, ayurvedic, herbal, wellness , cosmetic homeopathy and or veterinary, including bulk drugs, and intermediates, organic compounds acids, vitamins, medicines from fermentation products, diagnostics, chemicals related to medicines, Chemical contraceptives, acids, alkalis, manure antibodies, bandages, medical cotton, gauge, crutches and various types of anatomical, orthopaedic or surgical instruments, implants, mother tincture preparations, globules, creams, scents, soaps, lotions, toiletry goods and related products thereto.

Our Company is promoted by Mr. Vivek Ashok Kumar Patel, Mr. Harshad Nanubhai Rathod, Mr. Mayur Popatlal Sojitra and Mr.Hardik Mukundbhai Prajapati who owns and controls our Company.

On the basis of our restated standalone financial statements, our total revenue from operations for FY 2021-2022, FY 2022-2023 and FY 2023-2024 was ^ 2,229.20 Lakhs, ^ 2,938.43 Lakhs and ^ 3,366.52 Lakhs respectively and our net profit/ (loss) for FY 2021-2022, FY 2022-2023 and FY 2023-2024, was ^ 7.90 Lakhs, ^ 10.39 Lakhs and ^ 465.77 Lakhs respectively and for the period starts from April 01, 2024 to July 20, 2024 our total revenue from operations is ^ 1,187.10 Lakhs and our net profit/ (loss) for the same period is ^ 156.73 Lakhs.

Our key strengths

We believe the following are our key strengths:

• Promoters has depth knowledge of product line.

• Our Promoters network in the trading community

• Experienced and qualified management team

• Existing client and supplier relationships

For further details, kindly refer the section titled "Risk Factors" beginning on page 34 of this Draft Red herring Prospectus and the chapter titled "Business Overview" beginning on page 141 of this Draft Red Herring Prospectus.

Our key strategies

Our key strategic initiatives are as under:

• Increase geographical presence

• Diversify our Product Portfolio

• Better working capital management

• Leveraging our Market skills and Relationships

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO JULY 20, 2024 THAT MAY AFFECT OUR FUTURE RESULTS OF OPERATIONS

No circumstances have arisen since the date of the last Restated Financial Statements as disclosed in this Draft Red Herring Prospectus which materially and adversely affects or is likely to affect, our trading or profitability, or the value of our assets or our ability to pay our liabilities within the next 12 months of the date of the last Restated Financial Statements as disclosed in this Draft Red Herring Prospectus. There is no development subsequent to June 20, 2024 that we believe is expected to have a material impact on the reserves, profits, earnings per share and book value of our Company.

FACTORS AFFECTING OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The business of our Company is subject to various risks and uncertainties including those discussed in section titled "Risk Factors" on page 34 of this Draft Prospectus. Our financial condition and results of operations are affected by various factors of which the following are of particular importance:

• We face competition in our business from organized and unorganized players, which may adversely affect our business operation and financial condition.

• Not entering into any long term contracts with any of our customers and typically operating on the basis of purchase order basis could adversely impact our revenue and profitability

• Changes in government regulations or their implementation could disrupt our operations and adversely affect our business and results of operations.

• Changing laws, rules and regulations and legal uncertainties, including adverse application of tax laws and regulations, may adversely affect our business and financial performance.

• Political instability or a change in economic liberalization and deregulation policies could seriously harm business and economic conditions in India generally and our business in particular.

• A slowdown in economic growth in India and globally could cause our business to suffer.

Our Significant Accounting Policies: Our significant accounting policies are described in the section titled "Financial Statements" on page 229 of this Draft Prospectus.

Change in accounting policies in previous 3 (three) years: Except as mentioned in chapter "Financial Statements" on page 229 of this Draft Prospectus, there has been no change in accounting policies in last 3 (three) years.

SUMMARY AND COMPARISION OF SIGNIFICANT ITEMS OF INCOME AND EXPENDITURE OF THE COMPANY

The following table sets forth selected financial data from our restated standalone profit and loss accounts for financial years ended 2022, 2023 and 2024 and for the period ended July 20, 2024:

	For the Period / Financial Year ended
Particulars	For Period April 01, 2024 to July 20, 2024 (Amount in Lakhs)		March 31 2024 (Amount in Lakhs)			March 31 2023 (Amount in Lakhs)			March 31 2022 (Amount in Lakhs)
	R in lakhs	% to TI*	R in lakhs	% to TI*	% Change**	R in lakhs	% to TI*	% Change**	R in lakhs	% to TI*
I. TOTAL INCOME
Revenue from Operations	R 1,187.10	99.84%	R 3,366.52	99.19%	14.57%	R 2,938.43	99.50%	31.82%	R 2,229.20	98.71%
Other Income	R 1.91	0.16%	R 27.34	0.81%	85.70%	R 14.72	0.50%	-49.61%	R 29.22	1.29%
Total income	R 1,189.00	100.00%	R 3,393.86	100.00%	14.92%	R 2,953.15	100.00%	30.76%	R 2,258.42	100.00%
II. EXPENDITURE
Cost of Material & Consumable Consumed	R 827.43	69.59%	R 2,505.91	73.84%	5.90%	R 2,366.33	80.13%	27.13%	R 1,861.29	82.42%
Change in Inventories	-R 47.87	-4.03%	-R 344.95	-10.16%	999.27%	-R 31.38	-1.06%	-0.70	-R 105.26	-4.66%
Employees Benefit Expenses	R 102.39	8.61%	R 261.87	7.72%	5.85%	R 247.40	8.38%	26.22%	R 196.01	8.68%
Finance Costs	R 42.25	3.55%	R 37.13	1.09%	-65.50%	R 107.64	3.64%	5.88%	R 101.66	4.50%
Depreciation & Amortisation Expenses	R 8.84	0.74%	R 84.73	2.50%	-8.23%	R 92.33	3.13%	13.92%	R 81.04	3.59%
Other Expenses	R 43.55	3.66%	R 194.76	5.74%	24.09%	R 156.95	5.31%	38.54%	R 113.28	5.02%
Total Expenses	R 976.59	82.14%	R 2,739.45	80.72%	-6.80%	R 2,939.27	99.53%	30.75%	R 2,248.02	99.54%
Profit/ (Loss) Before Tax	R 212.41	17.86%	R 654.41	19.28%	4614.47%	R 13.88	0.47%	33.47%	R 10.40	0.46%
Less: Tax Expenses
(1) Current Tax	R 55.68	4.68%	R 185.96	5.48%	4700.13%	R 3.87	0.13%	67.04%	R 2.32	0.10%
(2) Tax related to previous year	R 0.00	0.00%	R 0.00	0.00%	0.00%	R 0.00	0.00%	0.00%	R 0.00	0.00%
(3) Deferred Tax	R 0.00	0.00%	R 2.68	0.08%	-803.65%	-R 0.38	-0.01%	-307.59%	R 0.18	0.01%
Total Tax Expenses	R 55.68	4.68%	R 188.64	5.56%	5299.52%	R 3.49	0.12%	39.60%	R 2.50	0.11%
Profit/ (Loss) for the Year	R 156.73	13.18%	R 465.77	13.72%	4384.06%	R 10.39	0.35%	31.52%	R 7.90	0.35%

COMPARISON OF HISTORICAL RESULTS OF OPERATIONS

FINANCIAL YEAR ENDED ON MARCH 31, 2024 COMPARED TO YEAR ENDED ON MARCH 31, 2023

Note 1: Since Our Company was incorporated on November 29,2023 hence comparison of Historical results of operations is not available for our company itself. Comparison of Historical results is given hereunder for Partnership Firm of promoters which was converted to our company hence comparison in financials figures given hereunder for the year ended March 31, 2024 and March 31, 2023 of Partnership Firm Namely M/S Accretion Pharmaceuticals.

1) Total Revenue

Our total revenue increased to Rs. 3,393.86 lakhs for the year ended on March 31, 2024, as compared to ^ 2,953.15 Lakhs for the year ended on March 31, 2023.

2) Total Expenditure

Our total expenditure decreased to Rs. 2,739.45 Lakhs for the year ended on March 31, 2024, as compared to Rs. 2,939.27 Lakhs for the year ended on March 31, 2023. Total expenditure for the year ended on March 31, 2024 stood at 80.72% of the total revenue as compared to 99.53% for the year ended on March 31, 2023.

3) Revenue from operations

Our revenue from operations increased to Rs. 3,366.52 lakhs for the year ended on March 31, 2024, as compared to Rs. 2,938.43 Lakhs for the year ended on March 31, 2023. The increase in the Operating Revenue is primarily due to increase in Domestic and Export Sales.

4) Other income

Our Other Income increased to Rs. 27.34 Lakhs for the year ended on March 31, 2024, as compared to Rs. 14.72 Lakhs for the year ended on March 31, 2023.

5) Cost of Material & Consumable Consumed

Cost of Material & Consumable Consumed as a percentage of total income is 73.84% during the year ended March 31, 2024. In absolute terms, Cost of Material & Consumable Consumed was ^ 2,505.91 Lakhs during the year ended March 31, 2024. During the year ended March 31, 2023, there was Cost of Material & Consumable Consumed was ^ 2,366.33 lakhs which is 80.13% of total income.

6) Employee Benefit Expenses

Employee Benefit Expenses as a percentage of total income is 7.72% during the year ended March 31, 2024. In absolute terms, Employee Benefit Expenses was ^ 261.87 Lakhs during the year ended March 31, 2024. During the year ended March 31, 2023, Employee Benefit Expenses was ^ 247.40 lakhs which is 8.38% of total income. Increase in the employee benefit expenses is due to increase in Salary, wages, Bonus, other allowances and gratuity expenses.

7) Other Expenses

Other expenses as a percentage of total income is 5.74% during the year ended March 31, 2024. In absolute terms, Other Expenses was Rs. 194.76 Lakhs during the year ended March 31, 2024. During the year ended March 31, 2023, Other Expenses was 5.31% of Total Income. In absolute terms, Other Expenses was Rs. 156.95 Lakhs during the year ended March 31, 2023. This increase is due to increase in taxes, travelling expenses, legal and professional charges etc.

8) Profits Before Tax

Profits before tax as a percentage of total income is 19.28% during the year ended March 31, 2024. In absolute terms, Profit before tax was Rs. 654.41 Lakhs during the year ended March 31, 2024. During the year ended March 31, 2023, Profits before tax was 0.47% of Total Income. In absolute terms, Profit before tax was Rs. 13.88 Lakhs during the year ended March 31, 2023.

9) Profits After Tax

Profits After tax as a percentage of total income is 13.72% during the year ended March 31, 2024. In absolute terms, Profit After tax was Rs. 465.77 Lakhs during the year ended March 31, 2024. During the year ended March 31, 2023, Profits After tax was 0.35% of Total Income. In absolute terms, Profit After tax was Rs. 10.39 Lakhs during the year ended March 31, 2023.

FINANCIAL YEAR ENDED ON MARCH 31, 2023 COMPARED TO YEAR ENDED ON MARCH 31, 2022

1) Total Revenue

Our total revenue increased to Rs. 2,953.15 Lakhs for the year ended on March 31, 2023, as compared to Rs. 2,258.42 Lakhs for the year ended on March 31, 2022.

2) Total Expenditure

Our total expenditure decreased to Rs. 2,939.27 Lakhs for the year ended on March 31, 2023, as compared to Rs. 2,248.02 Lakhs for the year ended on March 31, 2022. Total expenditure for the year ended on March 31, 2023 stood at 99.53% of the total revenue as compared to 99.54% for the year ended on March 31, 2022.

3) Revenue from operations

Our revenue from operations increased to Rs. 2,938.43 lakhs for the year ended on March 31, 2023, as compared to Rs. 2,229.20 Lakhs for the year ended on March 31, 2022. The increase in the Operating Revenue is primarily due to increase in Domestic and Export Sales.

4) Other income

Our Other Income decreased to Rs. 14.72 Lakhs for the year ended on March 31, 2023, as compared to Rs. 29.22 Lakhs for the year ended on March 31, 2022.

5) Cost of Material & Consumable Consumed

Cost of Material & Consumable Consumed as a percentage of total income is 80.13% during the year ended March 31, 2023. In absolute terms, Cost of Material & Consumable Consumed was Rs. 2,366.33 Lakhs during the year ended March 31, 2023. During the year ended March 31, 2022, there was Cost of Material & Consumable Consumed was Rs. 1,861.29 lakhs which is 82.42% of total income.

6) Employee Benefit Expenses

Employee Benefit Expenses as a percentage of total income is 8.38% during the year ended March 31, 2023. In absolute terms, Employee Benefit Expenses was Rs. 247.40 Lakhs during the year ended March 31, 2023. During the year ended March 31, 2022, Employee Benefit Expenses was Rs. 196.01 lakhs which is 8.68% of total income. Increase in the employee benefit expenses is due to increase in Salary, wages, Bonus, other allowances and staff welfare expenses.

7) Other Expenses

Other expenses as a percentage of total income is 5.31% during the year ended March 31, 2023. In absolute terms, Other Expenses was Rs. 156.95 Lakhs during the year ended March 31, 2023. During the year ended March 31, 2022, Other Expenses was 5.02% of Total Income. In absolute terms, Other Expenses was Rs. 113.28 Lakhs during the year ended March 31, 2022. This increase is due to increase in repairs and maintenance expenses, sales promotion expenses etc.

8) Profits Before Tax

Profits before tax as a percentage of total income is 0.47% during the year ended March 31, 2023. In absolute terms, Profit before tax was Rs. 13.88 Lakhs during the year ended March 31, 2023. During the year ended March 31, 2022, Profits before tax was 0.46% of Total Income. In absolute terms, Profit before tax was Rs. 10.40 Lakhs during the year ended March 31, 2022.

9) Profits After Tax

Profits After tax as a percentage of total income is 0.35% during the year ended March 31, 2023. In absolute terms, Profit After tax was Rs. 10.39 Lakhs during the year ended March 31, 2023. During the year ended March 31, 2022, Profits After tax was 0.35% of Total Income. In absolute terms, Profit After tax was Rs. 7.90 Lakhs during the year ended March 31, 2022.

Discussion of other aspects as mandated by SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

(a) Unusual or infrequent events or transactions including unusual trends on account of business activity, unusual items of income, change of accounting policies and discretionary reduction of expenses etc.

Except as described in this Draft Prospectus, during the periods under review there have been no transactions or events, which in our best judgment, would be considered unusual or infrequent.

(b) Significant economic changes that materially affected or are likely to affect income from continuing operations;

To the knowledge of the management of our Company, there have been no significant economic changes in the industry in the recent past, which are likely to affect income from continuing operations.

(c) Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations;

Apart from the risks as disclosed under Section "Risk Factors" beginning on page 34 of this Draft Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

(d) Future changes in relationship between costs and revenues, in case of events such as future increase in labour or material costs or prices that will cause a material change are known;

Other than as described in the chapter titled "Risk Factors" on page 34 of this Draft Prospectus, to our knowledge there are no factors, which will affect the future relationship between costs and income or which are expected to have a material adverse impact on our operations and finances.

(e) Details of the extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices;

Increases in revenues are by and large linked to increases in volume of business.

(f) Details of the total turnover of each major industry segment in which the issuer operated;

Our Company is currently operating in one business segment and the entire turnover of the Company is from its current business segment.

(g) Details of status of any publicly announced new products or business segment;

As our Company has not announced any new Product, this is not applicable.

(h) Details of the extent to which business is seasonal;

Our Companys business is not seasonal in nature.

(i) Details of significant dependence on a single or few suppliers or customers;

Approximately 88% of our revenue is dependent upon our Top 10 Customers as per the Restated Audited Financials for period ended July 20, 2024.

Approximately 33.41% of our purchase is dependent upon our Top 10 Supplier as per the Restated Audited Financials for period ended July 20, 2024.

(j) Competitive conditions.

We face competition from the unorganized sector as well as organized sector. For further details, kindly refer the chapter titled "Business Overview" beginning on page 141 of this Draft Prospectus.