Alpa Laboratories Ltd Management Discussions.

ECONOMIC OUTLOOK

Global spending on medicines is forecast to reach $1.5 trillion by 2021,up by 33 percent from 2016 levels according to a research released by the quintiles IMS Institute. The growth is predicted on the basis of various factors like market drivers upcoming trends growth pattern and market challenges .Indian GDP growth has been the most phenomenal in the past decade regularly achieving an annual growth of 6-7 percent The rise in GDP is largely credited to factors including urbanization and improvement in the efficiency and productivity of technologies. The GDP growth for financial year 2019-20 touched 4.2% vis-a-vis 6.1% in financial year 2018-19, the COVID-19 pandemic further aggravating the slowdown from the end of the last quarter. The Government of India and the Reserve Bank of India (RBI) have acted swiftly to help offset the pandemic-induced disruptions

Growth in 2020 is expected to remain low due to a sharp decline in trade, investments and private consumption owing to the COVID-19 crisis. As economies around the world are suffering from the impact of COVID-19, several businesses are also experiencing challenges in operations and supply chain disruptions. Pharmaceutical companies are putting strenuous efforts to develop appropriate medicine/vaccine for this virus besides making timely availability of medicines to support the initiatives of the governments to contain the spread of the virus.

INDUSTRY REVIEW:

The Indian pharmaceutical industry is the worlds third largest by volume with an annual revenue of about USD41 billion (domestic formulations market and exports). It is the largest provider of generic medicines globally, occupying a 20% share in global supply by volume, and also supplies 62% of global demand for vaccines. The Indian pharma industry has been growing at a compounded annual growth rate (CAGR) of more than 15% over the past five years. India is often referred to as the “pharmacy to the world”, ranking 3rd worldwide in total pharmaceutical production volume and 10th by value. As per National Indian Promotion Agency, it is the largest producer of generic medicines and vaccines, occupying 20% volume share in generics and 62% in vaccines.

COVID 19:

As economies around the world are suffering from the impact of COVID-19, several businesses are also experiencing challenges in operations and supply chain disruptions. Pharmaceutical companies are putting strenuous efforts to develop appropriate medicine/vaccine for this virus besides making timely availability of medicines to support the initiatives of the governments to contain the spread of the virus. COVID-19 has almost impacted every industry, causing steep inroads into the global economy. It has disrupted supply chains and international trade, with more than 100 countries closing borders and movement of people. With lockdown in place for nearly 45 days in most of the countries, the world economy is expected to contract by 3%.

India has also significantly increased the import of antibiotics from China in the recent years, and the trade is currently worth billions of dollars. If China decides to pull the plug on supply, it will lead to a huge public health crisis in India. Drug companies claim that low cost imports have forced a lot of manufacturers to shut up shop. A number of them have given up manufacturing ingredients for other drug makers and have started manufacturing complex formulations on their own. These are then exported to developed markets in first world countries. Difficulties in obtaining environmental clearances and red tape have made it quite uneconomical to manufacture raw materials indigenously

Pharmaceutical and biotech companies around the globe are working with governments to address the COVID-19 outbreak, from supporting the development of vaccines to planning for medicines supply chain challenges. Healthcare systems are being put under significant pressure, at a time when many are already over-stretched, medical congresses are being cancelled, bans on non-essential travel and enforced home working are emerging.

Some of the Impact of COVID 19 faced by the company as well as industry during the pandemic of COVID 19 with adversely effect on the operations of the company.

The Company has also faced the similar challenges during the ongoing pandemic of COVID 19 which affects badly on the operations of the company during the period of 3-4 Months. Meanwhile company has set up internal guidelines to face COVID 19 challenges and bring back the growth line of business as occurred In the past.

GROWTH DRIVERS:

LONGER LIFE EXPECTANCY:

With declining fertility and increased longevity, the relative size of older age groups is increasing, Individuals are becoming increasingly health conscious and medical science continues to advance, number of older people is growing faster than the number of people in younger age groups. Older people (representing aged 65 and older) is projected to increase from 9% in 2019 to 16% by 2050. In Todays Modern era many youngsters are very health cautious and development in medical science also supports the human health.

CHANGING LIFESTYLES:

In todays world, lifestyle of individuals is increasingly becoming hectic and stressful leading to unhealthy eating habits, lack of exercise, less sleep and other lifestyle choices. This change in lifestyle has resulted in higher obesity, hypertension, depression, diabetes, cardiovascular diseases and other physical problems. sedentary lifestyle, changing dietary habits, hectic and stressful life, less sleep and certain environmental factors causes higher incidence of chronic diseases. This include obesity, hypertension, depression, diabetes, cardiovascular diseases and other physical problems.

RISING DISPOSABLE INCOME:

Disposable income, also known as disposable personal income (DPI), is the amount of money that households have available for spending and saving after Income Tax have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy. In emerging markets, long term economic growth will lead to rise in disposable incomes. Due to this, the demand for better healthcare solutions will gradually increase.

IMPROVING PURCHASING POWER:

The middle-class population as well as per capital income continues to expand, driving demand for healthcare solutions. This expansion is likely to be more prominent in emerging markets.

TECHNOLOGY & INNOVATION:

Patients are better informed and aware of the healthcare choices available to them through technological advances such as mobile apps and healthcare devices. A new wave of innovation continues to replenish the product pipeline and will provide essential therapeutic advances for patients. In addition to novel medicines, there will be an ongoing flow of new mechanisms that will see their first human uses in areas such as genome-editing, micro biome as well as regenerative cell technologies that include stem cells harvested from one part of the body to use against a disease in another part.

HEALTH INSURANCE & INFRASTRUCTURE:

Penetration of health insurance is expected to surge with the government sponsored initiatives and programs. Increase in private sector insurance will also play an important role in affordability for higher cost. Moreover, medical infrastructure due to setting up / renovation of hospitals and healthcare centers, procurement of medical equipment and devices and improvement in medical education is expected to give healthcare providers the tools and resources necessary to treat their patients.

REGULATORY POLICIES:

Regulatory agencies have set a high priority to improve the drug review process to increase competition to reduce prices. Policies imposed by regulatory will be a significant growth driver to achieve success.

PERFORMANCE SNAPSHOT:

During the financial year under report, the Company registered a total income of 8893 Lacs as against 8305 Lacs in the previous financial year, a growth of 7.08% has been noticed. Since the company is moving on a strong path to achieve the highest milestone in the pharmaceutical industry for this company has started new market in overseas countries so that turnover can be maximized through supplies in overseas market.

As during the year company has also been noticed that order from government department has been significantly increased as compared to the previous year it may impact on the turnover also.

SEGMENT REPORTING:

The Company operates in a single segment of Drugs and Chemicals, which is the primary reportable segment, and the same is given in the notes to the financial statements.

OUTLOOK, RISKS AND CONCERNS:

Alpa Laboratories Limited has built a strong culture of risk mitigation process which entails regular and stringent monitoring of its business activities to identify, evaluate and resolve risks. The top management of the Company and the Board are involved in monitoring of risk assessment and mitigation, thus ensuring a quick resolution mechanism.

However, some risk and concerns had been faced by the organization like:

LITIGATION RISKS:

The Company is producing various products and the risk of future litigation may exist due to very complex terms and conditions of the agreements, at present there are few litigations are pending which may do not have any impact on the company as the litigation is not much have such depth to effect the affairs of the company.

COMPETITION RISK:

Indian Market is growing rapidly and the new players in the Pharma industry may create new challenges for existing Pharma companies . Competition is an integral part of all industries and pharmaceutical is no exception. Different markets / businesses have different intensities of competitions and Company has a robust framework to identify its competitive advantages like early-to-market, niche new product launches through identifying unmet medical needs etc.

REGULATORY RISK:

Pharmaceutical is among one of the highly regulated industries across the world and rightly so as it deals with evolving human life. These regulation impact development, manufacturing, approval, marketing and distribution of products, while throwing new compliance challenges. A strong quality assurance mechanism and compliance monitoring network at Alpa ensures strict compliance at every level.

FOREIGN EXCHANGE RISK:

Due to the impact on COVID 19 Import/Export has effected very adversely on the industry and the company has witnessed the shortage of foreign currency due to lack of export sales during the March 20 to June 20. The Company earns a vital part of its revenue in foreign exchange, thus exposing it to the volatility in the exchange rates. The Company follows a conservative and disciplined hedging policy which ensures protecting the desired exchange rate for sustaining the profitability.

PRODUCT LIABILITY RISK:

The business is exposed to potential claims for product liability. These risks are sought to be managed by appropriate laboratory and clinical studies for each new product, compliance with Good Manufacturing Practices and independent quality assurance system. The Company also has an adequate insurance cover for product liability.

MANUFACTURING & SUPPLYING RISK:

Although a major portion of the Companys finished formulations are being manufactured at in-house facilities, the Company also depend on third party suppliers for sourcing for some of the markets. Any significant disruption at inhouse facilities or any third-party manufacturing locations due to economic, regulatory political & social factors or any other event may impair the Companys ability to produce, procure and/or ship products to the markets on a timely basis and could expose the Company to penalties and claims from customers.

OVERSEAS MARKETS:

The development of the business in overseas markets is a critical factor in determining future ability to sustain or increase global product revenues. This poses various challenges including volatile economic conditions, IP issues, developed market compliance standards, inadvertent breaches of local / international law and interventions by national governments or regulators restricting access to market and / or introducing adverse price controls. However, the Company carefully monitors the business scenarios of these markets, prepares the business plan and undertakes various researches to reduce the risk at the minimal level.

CURRENCY FLUCTUATION RISKS:

Currency risks mainly arise out of overseas operations and financing activities. Exchange rate fluctuations could significantly impact earnings and net equity because of invoicing in foreign currencies, expenditure in foreign currencies. The Company has a defined foreign exchange risk management framework to manage these risks excluding translation risks.

DEPENDENCE ON INFORMATION TECHNOLOGY:

The Company is highly dependent on information technology systems and related infrastructure. Any breakdown, destruction or interruptions of this system could impact the day to day operations. There is also a risk of theft of information, reputational damage resulting from infiltration of a data center and data leakage of confidential information either internally or otherwise. The Company keeps on investing appropriately on the protection of data and information technology to reduce these risks

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has recently set up the new software system to enable to track the real time information at any time with the clear picture. We try every possible manner to protect the safeguards of assets of the members of the company. The Company is currently having strong system of internal controls in supervision, checks, policies and procedures, which are being tested on routine basis by the management and the internal auditors. The system is being reviewed and updated on an ongoing basis. Moreover, the company continuously upgrades these systems in line with the best accounting practices. The Audit Committee also reviews the adequacy of internal controls systems and the compliance thereof. Further, the annual financial statements of the company are reviewed and recommended by the audit committee for the consideration and approval of the board of directors. The committee also reviews internal controls systems, significant accounting policy, major accounting entries, related party transactions, etc.

HUMAN RESOURCE

The human resources are assets for the organization and plays a crucial role in the growth and success of an organization. Company has a policy to retain talent at its high priority to enable achievement of organizational goal and vision. The organization takes pride in its human capital, which comprises of people from diverse backgrounds and cultures. Guided by the core values which are deeply imbibed in each of the employees, the organizations achievements are an outcome of efforts, dedication and conviction demonstrated by its people.

The company has 391 permanent employees as on 31st March, 2020 against 405 employees as the end of March 2020, a decrease of 14 employees has been noticed.

RESULTS OF OPERATION OF THE COMPANY IN THE BRIEF SNAPSHOT

2019-20 2018-2019

% Change

PARTICULARS Rs. In Lacs Rs. In Lacs
Total Income 8893.58 8305.32 7%
EBITDA 631.77 619.48 2%
Depreciation 114.20 109.57 4%
Interest Charges 9.84 47.68 -79%
Profit Before Tax 507.73 462.23 10%
Exceptional Items - - -
Income Tax and Deferred Tax 99.92 167.31 -40%
Profit After Tax 410.30 288.32 42%

FINANCIAL PERFORMANCE

- Total Income has risen from the 8305.32 levels to 8893.58 with 7% increased.

- PBT has also risen from the 462.23 levels to 507.73 with 10% increased.

- Depreciation has slightly increased due to new addition in capex.

- Interest amount has significantly decline due to paying off all the debts on time.

- PAT has also risen from the levels of 288.32 Lacs to 410.30 Lacs with significant risen of 42% levels.

CAUTIONARY STATEMENT:

Certain statement in the management discussion and analysis may be forward looking within the meaning of applicable securities laws and regulations and actual results may differ materially from those expressed or implied. Factors that would make differences to companys operations include competition, currency fluctuations, regulatory issues, changes in government policies with in India and the countries in which the company conduct business and other incidental factors.