alpa laboratories ltd cash flow Management discussions

MANAGEMENT DISCUSSIONS AND ANALYSIS REPORT

To,

The Shareholders

CAVEAT

Shareholders are cautioned that certain data and information external to the Company is included in this section. Though these data and information are based on sources believed to be reliable, no representation is made on their accuracy or comprehensiveness. Further, though utmost care has been taken to ensure that the opinions expressed by the management herein contain their perceptions on most of the important trends having a material impact on the Companys operations, no representation is made that the following presents an exhaustive coverage on and of all issues related to the same. The opinions expressed by the management may contain certain forward looking statements in the current scenario, which is extremely dynamic and increasingly fraught with risks and uncertainties. Actual results, performances, achievements or sequence of events may be materially different from the views expressed herein. Shareholders are hence cautioned not to place undue reliance on these statements and are advised to conduct their own investigation and analysis of the information contained or referred to in this section before taking any action with regard to their own specific objectives. Further, the discussion following herein reflects the perceptions on major issues as on date and the opinions expressed here are subject to change without notice. The Company undertakes no obligation to publicly update or revise any of the opinions or forward-looking statements expressed in this section, consequent to new information, future events, or otherwise.

ECONOMIC OUTLOOK

The last two years have been difficult for the world economy on account of the COVID-19 pandemic. Repeated waves of infection, supply-chain disruptions and, more recently, inflation have created particularly challenging times for policymaking. The ongoing Russia- Ukraine crises have only exacerbated the situation. Faced with these challenges, the Government of Indias immediate response was a bouquet of safety-nets to cushion the impact on vulnerable sections of society and the business sector. It next pushed through a significant increase in capital expenditure on infrastructure to build back medium-term demand as well as aggressively implemented supply-side measures to prepare the economy for a sustained long-term expansion.

Advance estimates suggest that the Indian economy is expected to witness real GDP expansion of 9.0 percent in 2021-22 after contracting in 2020-21. This implies that overall economic activity has recovered past the pre-pandemic levels. Almost all indicators show that the economic impact of the "second wave" in Q1 was much smaller than that experienced during the full lockdown phase in 2020-21 even though the health impact was more severe.

The overall outlook for the Indian economy is positive, continued pace of vaccination of larger segment of population while the global recovery is set to decelerate markedly amid continued COVID-19 flare-ups, diminished policy support, lingering supply bottlenecks and geo-political tensions. While the implications of Russia-Ukraine crisis are highly uncertain, in the near term the crisis is likely to create additional upward pressure on inflation and weigh on economic activity. Russia-Ukraine crises had led to surge in prices of crude oil and other commodities, exerting additional upward pressure on near term inflation. The crises may restrain global economic activity abroad and disrupt supply chains. The volatility in financial markets, particularly if sustained, could also act to tighten credit conditions and affect the real economy

After rebounding to an estimated 5.5 percent in 2021, global growth is expected to decelerate markedly to 4.1 percent in 2022, reflecting continued COVID-19 flare-ups, diminished fiscal support, lingering supply bottlenecks and on-going geo-political tensions. The near term outlook for global growth is somewhat weaker, and for global inflation notably higher, owing to pandemic resurgence, higher food and energy prices, geo-political tensions and more pernicious supply disruptions. Global growth is projected to soften further to 3.2 percent in 2023, as pent-up demand wanes and supportive macro-economic policies continue to be un-wound.

With the vaccination programme having covered the bulk of the population, economic momentum building back and the likely long-term benefits of supply-side reforms in the pipeline, the Indian economy is in a good position to witness GDP growth between 7.0-8.0 per cent in 2022-23.

Despite all the disruptions caused by the global pandemic, Indias balance of payments remained in surplus throughout the last two years. This allowed the Reserve Bank of India (RBI) to keep accumulating foreign exchange reserves, equivalent to ~13.2 months of merchandise imports and is higher than the countrys external debt. The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide an adequate buffer against possible global liquidity tapering in 2022- 23. Overall, macro-economic stability indicators suggest that the Indian economy is well placed to take on the challenges of 2022-23.

INDUSTRY REVIEW:

The COVID-19 pandemic has been the most impactful global public health crisis in decades, and yet it has illustrated the resilience of global health systems as they have readily adapted to peaks in demand.

In pharmerging countries, dramatic increases in healthcare access were the largest drivers of change in the use of medicines historically, but the trend is slowing and will result in volume declines across many markets. Increasingly, pharmerging countries are enabling access to newer medicines developed by multi-national companies, often earlier and with access to more of their populations than in the past. These trends are accompanied by efforts to contain spending will still generate the largest absolute growth of pharmerging countries.

Five years from now, medicine spending will include nearly 60% from specialty medicines in developed markets and 45% from specialty medicines in global markets, with the remainder predominately older and traditional therapies that will become progressively lower cost over time. The two leading global therapy areas are oncology and immunology lifted by significant increases in new treatments and medicine use and offset by losses of exclusivity, including biosimilars.

EMERGING TRENDS: Following are some key emerging industry trends.

Pricing Pressure: With rising demand for healthcare and falling budgets, governments and payers are exerting pressure to drive down prices. Governments, insurers and patients are requiring greater transparency around drug pricing. Channel consolidation in the US continues to exert pressure on generic pricing. One of the challenges facing drug manufacturers is to build closer relationships with patients. This has many benefits including better understanding of patient experience and improved adherence. However, the industry has some way to go to become a trusted part of the healthcare ecosystem.

Speciality Pharma: Specialty medicines are those which treat chronic, complex and rare diseases, and while they have a range of characteristics — including the complexity of disease management or distribution — the most commonly noted attribute is that they are more expensive than other more traditional medicines. Specialty medicines have been increasing as a share of spending in higher-income countries and upper middle income countries. Globally specialty medicines will be 45% of global spending by 2025, with more than half of Spending on these products in major developed markets.

Complex Generics: A complex generic is a generic that could have a complex active ingredient, complex formulation, complex route of delivery, or complex drug device combinations. Complex generic drugs are cheaper than branded drugs and offer the opportunity to capture additional value to patients by addressing additional unmet needs and enabling complex drug manufacturers to achieve market differentiation and earn higher margins. Opportunities for generics remain strong and positive across the globe, with an increasing demand for affordable healthcare and government focus on cost control and expansion of medical infrastructure. The availability of cost-effective, safe generic alternatives offers a tool, that can be used to balance access to and affordability of many major therapies required to maintain a healthy population of patients across multiple disease areas.

Biosimilars: Bio similar products are an identical copy of an original product already authorized for use and offer new therapeutic options with the potential for cost savings to the healthcare system. The introduction of regulatory frameworks for bio similar over the past 15 years has finally begun to contribute to systemic savings in a tangible way, and 2020, in particular, contributed a significant boost in bio similar impact from the U.S. for the first time. In the next five years, biologics will see $52 billion in lower brand spending, compared to $15.8 billion in the past five.

Growing incidence of Chronic & Sub-chronic therapies:

With changing lifestyle, aging population and improved diagnosis, incidence of chronic diseases or life style therapies are significantly increasing. This includes therapies such as Cardio-vascular, Anti-diabetic and Central Nervous System. This trend is even more prevalent in emerging markets such as India and Brazil.

Digital healthcare: Digital is the future in all sectors of the economy and society and healthcare is no exception. Digital delivery will become integral to healthcare provision, and something that people have embraced after being driven indoors by the pandemic. For India, this is a solution to the vexed problem of providing healthcare to a massive population confronted by inadequate hospital beds, doctor and nurse coverage ratios. Change is anyway on the horizon. Reorganization of supply chains through digital adoption, innovation and value-based procurement, and promising applications of big data technologies are emerging. Ayushman Bharat Digital Mission (ABDM) aims to create a national digital health ecosystem that supports universal health coverage in an efficient, accessible, inclusive, affordable, timely, and safe.

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 includes 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.

THREATS, RISKS AND CONCERNS

DRUG PRICE CONTROL:

Currently 380 drugs and 899 formulations are covered under National List of Essential Medicines [NLEM]. It is likely that the government may bring more such drugs and formulations under price control or change the mechanism of calculating the ceiling price of the drugs which are under the ambit of Drug Price Control Order 2015 [DPCO 2015], which in turn will have impact on the margins of the Company. The Company manages its product portfolio so as to minimize the product weightage of drugs under price control

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 513 permanent employees as on 31st March, 2021 against 393 employees as the end of March 2022, a decrease of 114 employees has been noticed.

RESULTS OF OPERATION OF THE COMPANY IN THE BRIEF SNAPSHOT

	2021-2022	2020-2021	% Change
PARTICULARS	Rs. In Lacs	Rs. In Lacs
Total Income	12306.00	10196.48	+20%
EBITDA	2136.80	1206.73	+77%
Depreciation	165.67	122.87	+35%
Interest Charges	13.08	4.64	+ 181%
Profit Before Tax	1958.05	1079.22	+81%
Exceptional Items	-	-	-
Income Tax and Deferred Tax	545.46	124.41	+331%
Profit After Tax	1412.58	726.44	+ 94%

FINANCIAL PERFORMANCE

- Total Income has risen from the 10196.48 levels to 12306.00 with 20% increased.

- PBT has also risen from the 1079.22 levels to 1958.05 with 81% 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 726.44 Lacs to 1412.58 Lacs with significant risen of 94% 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.