Alpa Laboratories Ltd Management Discussions

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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. 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

INDUSTRY STRUCTURE AND DEVELOPMENT

Pharmaceutical industry has emerged as one of the fastest growing industries in the world. The global pharmaceutical industry has shown rapid growth over the years driven by factors such as an aging population, increasing prevalence of chronic diseases, advancement in technology and raising healthcare awareness and expenditure fueled by expanding middleclass population seeking better access to healthcare. The pharmaceutical industry plays a crucial role in providing healthcare by researching, developing, producing and marketing a wide range of drugs including prescription medications, over the counter drugs, vaccines and biopharmaceuticals. The industry is characterized by stringent regulations, long research and development timelines, high investment in innovation and continuous quest for new and improved therapeutic solutions.

The new medications are being constantly developed, approved and marketed resulting in significant market growth. Oncology, immunology and neurology are the fastest growing therapy segments. The biologics market is also growing at a significant rate in the therapy areas such as oncology, diabetes and auto-immune diseases. The pharmaceuticals supply chain has also undergone significant transformation spurred by globalization, technological advancements, regulatory shifts and raising demand for healthcare products. The focus is now shifting from manual and transactional process to automation and strategic innovation. Significant investment in automating manufacturing and packaging processes to enhance productivity and operational cost efficiency is also taking place in the industry.

The pharmaceutical industry is estimated to grow from current US $ 1.6 trillion to about US $ 2.4 trillion by 2030. Overall, the pharmaceutical industry is expected to continue to evolve as it adapts to new technologies, regulatory changes and ongoing demand for innovative healthcare solutions. Inflation is falling faster than expected in most regions, amid unwinding supply-side issues and restrictive monetary policy. Global headline inflation is expected to fall to 5.8% in 2024 and to 4.4% in 2025

With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced. On the upside, faster disinflation could lead to further easing of financial conditions. Looser fiscal policy than necessary and versus what is assumed in the projections could imply temporarily higher growth, but at the risk of a more costly adjustment later. Stronger structural reform momentum could bolster productivity with positive cross-border spill overs. On the downside, new commodity price spikes from geopolitical shocks including continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments.

ECONOMIC OUTLOOK INDIAN ECONOMY

In FY 2023-24, the Indian economy has gained significant momentum, driven by positive macroeconomic indicators, improved labour market conditions, heightened urban demand, and increased government focus on capital expenditure. The National Statistics Organisation (NSO) in India has projected a robust growth of 7.6% for the Indian economy in FY 2023-24, exceeding the 7.0% growth witnessed in the previous FY 2022-23. Moreover, the Interim Budget for FY 2024-25 announced by the government indicates a move towards a self-reliant India, diminishing dependence on imports and fostering growth in domestic industries. By maintaining the status quo on both direct and indirect taxes, it ensures stability and simplicity for consumers.

According to the Short-Term Energy Outlook (STEO) April 2024 report, crude oil prices are expected to decline, reaching around US$ 90 per barrel for the rest of CY 2024 and averaging US$ 85 per barrel in CY 2025 as global oil production increases. This, along with the declining palm oil prices projected to moderate in CY 2023, will likely impact the Indian economy favourably

Looking ahead to FY 2024-25, the outlook is promising. The IMF projects a growth rate of 6.8% for India, while the Reserve Bank of India forecasts a growth rate of 7.2%. The governments support in the form of increased capital expenditure outlay for FY 2024-25, will be a key growth driver. Private consumption and public investment will likely fuel growth, while inflation moderation will likely support consumption trends.

GLOBAL ECONOMIC REVIEW:

In 2023, the global economy showed resilience despite significant challenges. The year began with supply-chain disruptions due to lingering post-pandemic effects, followed by surging inflation and a global energy and food crisis triggered by geopolitical tensions between Russia and Ukraine. Additionally, attacks on commercial shipping in the Red Sea caused a temporary rise in global transportation costs. Despite these challenges, global GDP grew by an estimated 3.2%, supported by robust employment growth, government spending and resilient household consumption. Though headline inflation peaked at 8.7% in 2022, causing economic concerns, it moderated to an average of 6.8% in 2023 due to synchronized monetary policy tightening by central banks. World Bank predicts high interest rates in 2024 and 2025 due to higher and stable commodity prices, geopolitical concerns and possibility of higher rates for longer in the US.

Despite geopolitical tensions and lingering economic headwinds, the outlook for the global economy is improving. The May 2024 Chief Economists Outlook from the World Economic Forum found that only 17% of economists surveyed expect conditions to worsen, a significant improvement compared to the 56% recorded in January 2024. This indicates a tempering down of the negative sentiment.

The global pharmaceutical market was estimated at around US$ 1.6 tn in CY2023, a US$ 100 bn more than CY2022. In the post pandemic era, pharmaceutical companies have been refreshing their portfolio strategies to continue their growth trajectory, with a combination of mergers and acquisitions (M&A), investments in research and development (R&D), including novel therapies and a higher adoption of digital capabilities. Most of these companies continue to be resilient in the face of increasing competition, the ever-evolving regulatory landscape, pricing and reimbursement pressures, looming patent expirations and growing demands from patients and health care providers for more effective medications and experiences.

Global health systems have demonstrated remarkable resilience in the face of the pandemic, global inflation, and regional conflicts, and have moved forward to adopt novel therapies and increased usage overall. Overall, global use and spending on medicines is exceeding pre-pandemic growth rates and is expected to continue significantly above those trends through 2028.

The global medicine market using list price levels is expected to grow at 5-8% CAGR through 2028, reaching about $2.3Tn in total market size. Spending and volume growth following diverging trends by region with larger established markets growing more rapidly, driven by new and existing branded products, while Pharmerging markets will grow more slowly and be driven more by volume than the mix of more expensive therapies.

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. This has many benefits including better understanding of patient experience and improved adherence.

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 43% of global spending by 2028

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.

Artificial Intelligence and Machine Learning:

• Drug Discovery and Development: AI and ML are playing an increasingly vital role in accelerating drug discovery processes by predicting drug interactions, identifying potential drug candidates, and optimizing clinical trials. In 2024, more pharmaceutical companies are expected to adopt AI-driven platforms to reduce costs and time in drug development.

• Personalized Medicine: AI is helping to tailor treatments based on individual patient data, leading to more personalized and effective therapies.

Advanced Therapeutics and Gene Editing:

• CRISPR and Gene Therapy: Gene-editing technologies like CRISPR are advancing rapidly, offering the potential to treat or even cure genetic disorders. 2024 is likely to see more clinical trials and potential approvals for gene-editing therapies.

• Cell and Gene Therapies: Continued innovation in cell and gene therapies, particularly in areas like oncology and rare diseases, will be a significant focus. These therapies are moving from experimental stages to more widespread clinical applications.

GROWTH DRIVERS:

Technological Advancements

• Artificial Intelligence and Machine Learning: AI and ML are transforming drug discovery, clinical trials, and personalized medicine. These technologies reduce the time and cost of drug development, allowing for faster innovation and market entry.

• Automation and Robotics: Enhanced manufacturing processes through automation and robotics are improving efficiency, reducing human error, and lowering production costs, leading to more scalable operations.

Rise of Biopharmaceuticals

• Biologics and Biosimilars: The demand for biologic drugs, including monoclonal antibodies and cell therapies, continues to grow. Biosimilars, which are more cost-effective alternatives to biologics, are gaining traction, especially in markets where cost containment is critical.

• Gene and Cell Therapies: Advances in gene and cell therapies, particularly for rare and chronic diseases, are opening new avenues for treatment, driving investment and growth in these areas.

Aging Population and Chronic Diseases

• Increased Demand for Healthcare: The global aging population is leading to a higher prevalence of chronic diseases such as diabetes, cardiovascular diseases, and cancer. This demographic shift is driving the demand for new and improved therapeutic options.

• Preventive Healthcare: There is also a growing focus on preventive healthcare, including vaccines and early- stage diagnostics, which are becoming critical in managing long-term health outcomes.

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 Standalone total income of 12361.29 Lacs as against 10236.36 Lacs in the previous financial year, a growth of 20.70% 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 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:

Threats.

• Evolving Regulations: Pharmaceutical companies operate in a highly regulated environment, with frequent updates and changes to regulations, particularly in areas like drug approvals, manufacturing standards, and labeling.

• Non-Compliance: Failure to comply with regulations can result in fines, product recalls, and damage to the companys reputation.

Controls

• Robust Compliance Programs: Implement comprehensive compliance programs that include regular training, internal audits, and monitoring systems to ensure adherence to regulatory requirements.

• Regulatory Intelligence: Establish a dedicated team or system to stay updated on regulatory changes and proactively adjust company practices.

• Documentation and Reporting: Maintain accurate and detailed records of all processes, decisions, and communications related to regulatory compliance.

FOREIGN EXCHANGE RISK:

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.

Operational Risks

Threats:

• Manufacturing Issues: Operational disruptions, such as equipment failures, production errors, or workforce shortages, can affect the supply of pharmaceutical products.

• Scalability Challenges: Rapidly scaling operations, particularly for new drug launches, can lead to quality issues, supply chain bottlenecks, and increased costs.

Controls:

• Process Optimization: Continuously optimize manufacturing processes to improve efficiency, reduce downtime, and enhance quality control.

• Contingency Planning: Develop and regularly update contingency plans for key operational risks, including alternative production sites, backup suppliers, and emergency response protocols.

• Scalable Infrastructure: Invest in scalable infrastructure and flexible manufacturing capabilities to accommodate growth and changes in demand.

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 410 permanent employees as on 31^st March, 2024 against 318 employees as the end of March 2023, a increase of 29% employees has been noticed.

Results of Operations for FY 2024 as compared with FY 2023

	2023-2024	2022-2023	% Change
PARTICULARS	Rs. In Lacs	Rs. In Lacs
Total Income	12361.28	10236.36	21.00%
EBITDA	2301.86	1748.45	32.00%
Depreciation	195.49	132.92	47.00%
Interest Charges	38.93	22.34	74.00%
Profit Before Tax	2067.43	1593.19	30.00%
Exceptional Items	-	-	-
Income Tax and Deferred Tax	389.67	330.75	18.00%
Profit After Tax	1685.92	1241.45	36.00%

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.