Ami Organics Ltd Management Discussions

Global economy

The global economy has been reeling under the impact of several headwinds in FY23, including new COVID variants, Europes food and energy crises and geopolitical conflicts, which could possibly lead to further economic turmoil. While the global economy demonstrated tentative signs of soft landing at the beginning of 2023, recent financial sector volatility and sticky inflation have dented the prospects for a sustained rebound. Risks are relatively skewed to the downside as debt levels remain high and geopolitical tensions intensify.

Inflation

The global inflation is expected to decelerate from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024 [Source: IMF World Economic Outlook, July 2023]. The downturn, however, is concentrated in advanced economies, especially the Eurozone and the United Kingdom. Moreover, the tightening of monetary policies by central banks across the globe is anticipated to contribute to an overall decline in global inflation.

Demand and Supply Crisis

The growth rate of global trade volume is predicted to slow down from 5.1% in 2022 to 2.4% in 2023 due to reduced global demand and increasing trade barriers. However, the gradual decline in commodity prices and Chinas reopening its economy are expected to slightly boost global demand and current account balances. The lessons learned from COVID-19 and supply chain disruptions have led to better inventory management, resulting in an oversupply in 2023 due to weakened demand, replenished inventories, increased capital expenditure, and normalized shipping conditions.

Financial Sector Turmoil

Central banks worldwide have implemented various tools to control persistent inflation, including raising interest rates to limit money circulation. However, this approach has highlighted the susceptibility of certain banking segments in the United States and other regions due to unrealized losses and reliance on uninsured or wholesale funding. These vulnerabilities could lead to future shocks that could negatively affect the global economy, making it essential for central banks to balance inflation control with financial system stability.

Outlook

Although the inflation, US banking crisis, and other geopolitical concerns pose major threats to the global economy, there are promising signs of a slow but steady recovery. In many cases, emerging markets and developing economies such as India are powering ahead, with growth rates predicted to rise significantly this year¹.

There are positive indicators that signify a gradual rebound from the pandemic-induced shocks and supply-chain constraints. The recent border reopening in China has helped ease supply chain disruptions. Additionally, emerging markets and developing economies (EMDEs) are projected to accelerate the global economy?s growth in the years ahead.

According to the IMF, India, along with China, is expected to contribute 50% of global growth in FY 2023.

Indian economic review

Notwithstanding the intensifying geopolitical concerns, the Indian economy is estimated to clock a growth rate of 72% in FY23.² Lowering unemployment and a rise in net payroll additions under the EPFO signify a surge in employment in the corporate sector. The corporate sector?s credit-to-GDP ratio is still below its historical trend. The corporate sectors debt level has also been crucial for sustaining macroeconomic stability. Consistent domestic demand, particularly in private consumption, an increase in gross fixed capital formation and the governments enhanced focus on capex have all contributed to this robust expansion.

FY23 is expected to bring a robust recovery in the services sector, while the agricultural sector is predicted to maintain its growth momentum. Inflation is anticipated to decrease due to base effects and a slowdown in demand, although there are potential risks from unfavourable weather conditions and increasing global oil prices. (Asian Development Bank Outlook April 2023)

March 2023 saw a decrease in consumer price pressures, as the CPI rose by 5.7% year-on-year, down from the February figure of 6.4%. As a result, inflation remained within the Reserve Bank of Indias (RBI) target range of 2%-6%. It is anticipated that inflation will continue to ease in the upcoming months due to base effects and a reduction in demand, but there are potential risks from adverse weather events and higher global oil prices. Although inflation has come down within the RBIs target range, it is expected that the policy rates will remain unchanged for the remainder of the year. (Asian Development Bank Outlook April 2023)

Outlook

India?s economy has remained strong despite the unfavourable global economic conditions, primarily given a conducive domestic policy environment and the government?s continued emphasis on structural reforms. The country is expected to maintain its position as the G-20?s fastest-growing nation in the coming years.

The future looks promising for economic growth, as factors such as increasing disposable income, improved access to credit, and declining interest rates, facilitated by a stabilizing inflation trajectory, come together to create a favourable environment.

The growth rate of India?s GDP is projected to decelerate to 6.4% in FY2023 due to various factors such as a global economic slowdown, tight monetary conditions, and consistently high oil prices. Despite this, the growth rate remains stronger than many of its peer economies, owing to its relatively resilient domestic consumption and lower reliance on global demand. India?s growth is expected to pick up to 6.7% in FY2024 as private investment improves and the industrial sector sees accelerated growth. (ADB Outlook 2023)

Global speciality chemical industry

The specialty chemical sector works in collaboration with various other industries, as the chemicals are employed in an array of applications including construction chemicals, textile chemicals, coatings and paints, mining chemicals, plastic additives, personal care, pharmaceuticals, among others.

According to market analysis, the worldwide speciality chemicals market is predicted to grow at a CAGR of 5.1% from 2022 to 2030 and is projected to reach a market size of USD 914.4 billion by 2030.³ The growth of the sector is driven by increasing demand from various industries such as flavours, fragrances, pharmaceuticals, rubber processing, electronics, and more.

Segment-wise growth enablers of speciality chemicals:

• The agriculture industry is driven by factors such as expanding population, soil degradation, increased demand for food and agricultural land. Moreover, the rising awareness among consumers about the benefits of using agrochemicals is expected to boost the growth of the agrochemicals industry.

• The global pharmaceutical industry is experiencing growth due to the increasing awareness of healthcare and lifestyle medications that are proven to be beneficial. This has led to a rise in demand for pharmaceutical products worldwide.

• The growth of the construction chemicals market is primarily driven by the expansion of new construction, repair, and renovation sectors in developing economies.

• The demand for finishing chemicals is being steered by technical textiles and functional home textile finishes.

• The demand for personal care products continues to surge in emerging markets, as consumers prioritize their health and wellness in the wake of the pandemic. This shift in consumer behaviour has led to an increase in the sales of personal care products in the long-term.

• The High-Performance Pigments (HPP) industry is primarily driven by the increased demand for HPPs in industries such as automotive and industrial coatings, plastics, and cosmetics.

• Growing research and development for creating novel products will likely provide an opportunity for these markets to expand.

Indian speciality chemical industry

The speciality chemicals industry is experiencing rapid growth, and the market in India is expected to expand at a CAGR of over 12% from 2020 to 2025, presenting numerous opportunities for both domestic and multinational manufacturers. Sectors like food, automobiles, clothing, real estate, and cosmetics have demonstrated substantial demand for these chemicals and are expected to continue aiding growth in the industry in India, exceeding that of the rest of the world in the coming years. Speciality chemicals make up more than half of all chemical exports, making them a significant part of the trade.⁴

The major factors contributing to the demand for Indian speciality chemicals are -

• Improved consumption standards

• High domestic consumption

• Growing demand from end-user industries

• Rising exports with further scope for expansion

• Favourable government initiatives and policies

India is becoming an increasingly attractive manufacturing destination for companies worldwide due to its cost-effective manufacturing capabilities, skilled process engineering, and ample workforce. The Indian speciality chemicals sector accounts for 22% of the country?s overall chemicals and petrochemicals industry, valued at USD 32 billion.⁵ The market

comprises of segments such as dyes and pigments, surfactants, polymers, textile chemicals, personal care chemicals, water chemicals, and construction chemicals. The unorganized sector of the industry is expected to be more extensive than the organized sector in some sub-segments, but its precise size is challenging to gauge.

Global pharmaceutical industry

The worldwide pharmaceuticals industry was valued at USD 12459.7 billion in 2021 and is projected to grow to USD 14068.6 billion by 2028, indicating a CAGR of 1.75% during the forecast period of 2022-2028.⁶

The ongoing Russia-Ukraine conflict has had a short-term negative impact on the global economic recovery postpandemic. It has led to economic sanctions on multiple countries, increased commodity prices and disruptions in supply chains.

The COVID-19 pandemic has now entered its fourth year and has been one of the most significant global public health crises in recent decades. Despite this, the pandemic has highlighted the resilience of global health systems, which have rapidly adapted to meet surges in demand and have developed highly effective and safe vaccines and therapeutics at an unprecedented pace. The global vaccination program has been unparalleled in its speed and scope, with even previously inaccessible low-income countries being reached.

While managing the pandemic during the endemic phase remains a challenge, other health concerns are now returning to the forefront. It is expected that global spending and usage of medications will revert to pre-pandemic growth rates by 2024. However, there are still uncertainties over the next two years regarding viral variants, COVID-19 vaccination rollouts, underutilization of booster shots, as well as economic uncertainties stemming from global inflation, geopolitical tensions, and climate change.

In the past decade, medicine consumption has increased by 36%, owing to enhanced accessibility. However, it is anticipated that the growth rate will decline until 2027, with the total number of doses expected to surpass 3.4 trillion, representing an increase of around 8% from 2022.

The Asia-Pacific region, India, Latin America, Africa, the Middle East, and China are expected to witness the most substantial growth in medicine consumption, mainly due to population expansion and improved accessibility. In contrast, North America, Europe, and Japan are predicted to experience minimal growth.

By 2027, it is projected that specialty drugs will account for approximately 43% of the global pharmaceutical expenditure and 56% of the total expenditure in advanced markets.

(Source: IQVIA Report)

Global pharmaceuticals market

Market forecast to grow at a CAGR of 1.8%

(USD billion)

India?s pharmaceutical industry

The pharmaceutical industry in India is projected to reach USD 130 billion by 2030, registering a Compound Annual Growth Rate (CAGR) of 12.3% from USD 40.8 billion in 2020 (KPMG Impact of the pharma industry on the Indian economy in the post-COVID era). Despite the pandemic, the industry has shown impressive growth, which can be attributed to its strong capabilities in formulation development, well-trained workforce, and positive reputation in international markets such as North America and Europe.

India plays a crucial role in the worldwide pharmaceutical industry, with exports to more than 200 countries, with the US being a significant market. The pharmaceutical sector contributes approximately 2% to Indias GDP and 8% to the countrys total merchandise exports, according to the RBI. India has the highest number of USFDA-compliant facilities outside of the US. As of August 2021, the USFDA had granted approval to 741 facilities in India, and as of December 2020, Indian companies had secured 4,346 ANDAs.

Currently, the solid dose formulation segment is the leading category in the finished dose segment, mainly due to cost- effectiveness, patent compliance, and easier maintenance. Additionally, India has gained worldwide recognition as the largest producer and exporter of generic drugs, with over 60,000 brands produced across 60 therapeutic categories. This amounts to approximately 20% of the global supply of generic medications.

The Indian pharmaceutical industry is being supported by various initiatives taken by the government, including production linked incentive (PLI) schemes, medical devices and bulk drug parks, with the aim of increasing domestic production of active pharmaceutical ingredients (APIs), biopharmaceuticals, complex generics, patented drugs, and medical devices. These measures are expected to transform India into a global manufacturing hub and contribute to the growth of the industry. Indias workforce, scientific research and development, manufacturing capabilities, and infrastructure position the country to provide universal healthcare access. The recent budget announcement regarding pharmaceutical R&D comes at a crucial time when India has played a significant role in the global effort to combat the COVID-19 crisis, having developed a vaccine and supplied vaccines, medications, and equipment to numerous countries in need.

Indian pharmaceutical firms have succeeded in not only catering to the domestic needs but also in becoming one of the leading exporters of pharmaceutical products. In FY21, Indias pharma exports witnessed a remarkable growth of over 18.2% (KPMG Impact of the pharma industry on the Indian economy in the post-COVID era). Indias position as a leading exporter can be attributed to various factors such as low capital requirements, cost-effective innovations, efficient manufacturing processes with minimal expenses, well-established R&D infrastructure, and operating facilities

Indian pharmaceutical market

(USD billion)

Global API industry

The global active pharmaceutical ingredients (API) market is expected to expand significantly by 2026, on the back of an increasing elderly population worldwide, rising awareness of APIs and their emerging therapeutic uses, and the development of innovative and biotech APIs. The market was valued at $185.72 billion in 2020 and is projected to grow at a CAGR of 6.22%, reaching a value of $266.80 billion by 2026.

Global Active Pharmaceutical Ingredients Market

(in billion)

The pharmaceutical industry is projected to see significant growth in various segments, including oncology, cardiovascular, anti-infective, central nervous system (CNS), respiratory, diabetes, and pain management.

• The increasing incidence of cancer and chronic diseases is driving growth in the oncology and cardiovascular markets.

• The anti-infective APIs market is also expanding due to an increase in lung infections and a large patient population with prolonged treatment needs.

• The CNS APIs market is expected to witness growth due to the rising demand for anti-psychotic products and increasing utilization of anti-epileptic drugs.

• The respiratory APIs market is expanding due to the increasing prevalence of respiratory illnesses, particularly in urban areas, and the long-lasting effects of COVID-19 on patients lungs.

• The diabetes APIs market is projected to grow due to unhealthy lifestyles and a lack of awareness among the general population.

• Lastly, the pain management segment is anticipated to expand as demand for fast-acting pain relief gels increases.

Global High Potency APIs or HPAPI Market:

The increasing demand for drugs and the growing focus on precision medicine and high-potency APIs, coupled with advancements in manufacturing technology, are driving the market for highly potent APIs (HPAPIs).

With the rising incidence of cancer and other related conditions, the production and consumption of HPAPIs are expected to increase.

In addition, the market is expected to benefit from increasing technological innovations, product launches, and the establishment of new HPAPI manufacturing facilities.

India?s API industry

Indias pharmaceutical industry is predicted to achieve a market value of USD 65 billion by 2024 and USD 130 billion by 2030, driven by the rising demand for cost-effective and high-quality medications in both domestic and global markets. India has become a major player in the global pharmaceuticals industry, ranking as the 3^rd largest producer of pharmaceuticals by volume and the 14^th largest by value.

India fulfils around 20% of the worlds demand for generic drugs, making it a key player and often referred to as the "pharmacy of the world.". India is a major manufacturer of more than 500 active pharmaceutical ingredients (APIs), contributing 57% of APIs to the World Health Organizations prequalified list. The API sector in India is attracting investors and venture capitalists due to the countrys strong domestic market, advanced chemical industry, highly skilled workforce, strict quality and manufacturing standards, and lower operating costs compared to Western countries. This competitive edge has been further strengthened by the increasing hostility between China and Western nations, leading global pharma companies to seek alternative sources of bulk drugs. India has emerged as an impressive substitute supplier of bulk drugs to fill this gap.⁷

The major growth drivers include -

• Enhanced government focus on generic drugs

• The growing geriatric population

• Rising demand for biologics and speciality drugs

• Increased expenditure on health care

• Greater awareness of healthcare and diseases

The India Active Pharmaceutical Ingredients (API) market is segmented into business mode (captive API and merchant API), synthesis type (synthetic and biotech), drug type (generic and branded) and application (cardiology, oncology, pulmonology, neurology, orthopaedic, ophthalmology, among other applications).

Government of Indias Schemes and Initiatives

It is worth noting that the Indian Government is also focusing on promoting innovation in the API sector. In March 2021, the Ministry of Chemicals and Fertilizers announced the formation of a high-level committee to identify APIs that can be produced indigenously, develop a roadmap for their development, and encourage local manufacturers to invest in research and development in this area. This initiative aims to reduce Indias dependence on imports and increase self-sufficiency in the production of APIs, which are essential components of pharmaceuticals.

Moreover, Indias National Health Stack (NHS), an initiative to digitize health records and build a national healthcare infrastructure, is expected to revolutionize the healthcare sector, and boost the API industry. The NHS aims to create a centralized platform for all health-related data, including electronic health records, prescription records, and diagnostic reports, which will help improve patient outcomes and drive demand for APIs.⁸

Global API Intermediate market

The API Intermediate market is anticipated to experience a compound annual growth rate (CAGR) of 6.5% from 2021 to 2028 on a global scale.⁹ The expansion in the pharmaceutical industry can be linked to several factors, including the growing incidence of chronic ailments, a surge in the request for generic drugs, and a rising trend in the use of biosimilars.

Indias API Intermediate market

Growth enablers of the API-RM/KSM market in India -

• Reduced reliance on imports: The governments efforts to encourage local manufacturing of raw materials that were previously imported from China is likely to reduce Indias reliance on imports and provide a boost to the domestic market. By incentivizing domestic production of these materials, the government is creating opportunities for local manufacturers and reducing the countrys vulnerability to supply chain disruptions. This will not only increase the competitiveness of Indian industries but also contribute to the overall growth of the economy.

• Shifting investments from regulated markets: The shift in investments from regulated markets, such as Europe, to emerging countries like India is expected to boost domestic output and lead to an increase in intermediate exports.

Overview of therapeutics

• Global antidepressants market

The global antidepressants market witnessed growth from USD 16.44 billion in 2022 to USD 17.41 billion in 2023, exhibiting a compound annual growth rate (CAGR) of 5.9%.¹⁰ The rise in mental health disorders worldwide has significantly contributed to the growth of the antidepressant drugs market as many patients rely on these medications to treat conditions such as depression, anxiety disorders, and other mental illnesses.

• Global antipsychotic drugs market

The global market for antipsychotic drugs is expected to witness significant growth, with projections estimating its value to increase from USD 15.50 billion in 2022 to USD 24.74 billion by 2029, representing a CAGR of 6.9%.¹¹ Although the market caters to a smaller user base compared to other diseases, the high cost of antipsychotic drugs compensates for the lower volume. The number of users is expected to increase rapidly worldwide, providing the industry with ample growth opportunities.

• Global anticoagulants market

The global anticoagulants market was valued at over USD 37 billion in 2021 and is estimated to grow at a compound annual growth rate (CAGR) of 9% from 2022 to 2030¹².

• Global Parkinsons disease treatment market:

The global market for Parkinsons disease treatment was estimated at USD 4.28 billion in 2021 and is projected to grow at a compound annual growth rate (CAGR) of 12.1% from 2022 to 2030.¹³

• Global idiopathic pulmonary fibrosis (IPF) treatment market

The market for Idiopathic Pulmonary Fibrosis (IPF) worldwide was estimated at USD 2,073.9 million in 2021 and is projected to reach USD 4,298.8 million by 2030, with a compound annual growth rate (CAGR) of 9.4% during this period.¹⁴

8 https:/www.investindia.gov.in/team-india-blogs/harnessing-indias-api-potential

 

9 https:/dataintelo.com/report/api-intermediate-market/

 

10 https:/www.thebusinessresearchcompany.com/report/antidepressant-global-market-report

 

11 https:/www.fortunebusinessinsiehts.com/industrv-reports/antipsvchotic-drugs-market-101390

 

12 https:/www.gminsights.com/industry-analysis/anticoagulants-market

 

13 https^/www.grandviewresearch.com/industry-analysis/parkinsons-disease-treatment-market

 

14 https:/www.researchandmarkets.com/reports/5547485/global-idiopathic-pulmonarv-fibrosis-market-bv

• Global anti-retroviral (ARV) market

The market for HIV drugs worldwide was valued at USD 30.51 billion in 2021 and is projected to grow at a CAGR of 5.2% from 2022 to 2030. The increasing prevalence of HIV and its treatment is one of the major drivers propelling the global antiretroviral (ARV) market forward.

• Global kidney cancer drugs market

Kidney cancer comprises about 2.0% of total adult cancer cases worldwide and 3.8% of new cancer cases in the United States. The kidney cancer drugs market is experiencing growth due to the rising number of kidney disease cases and increased research and development efforts by various pharmaceutical companies. The global kidney drugs market is predicted to have a compound annual growth rate (CAGR) of 5.9% from 2023 to 2030.¹⁵

• Global prostate cancer treatment market

The estimated size of the global market for prostate cancer therapeutics was USD 12.12 billion in 2022, and it is projected to grow at a CAGR of 8.4% from 2023 to 2030¹⁶. The growth of the market can be attributed to several factors such as the rising prevalence of prostate cancer, the use of advanced screening and diagnostic techniques, and government support for the development of new treatments for prostate cancer.

Global contract research and manufacturing services (CRAMS) industry

In 2022, the global market for pharmaceutical contract manufacturing and research services was valued at USD 226.6 billion. It is predicted to expand at a compound annual growth rate (CAGR) of 710% from USD 244.5 billion in 2023 to USD 395.2 billion in 2030. Adoption of outsourcing to cost-effective manufacturing facilities, the development of new active ingredients, and changes in the product portfolio are primary catalysts of growth for the market.

India?s CRAMS industry

The Indian pharmaceutical contract manufacturing market is projected to experience a positive compound annual growth rate (CAGR) of approximately 13.3% between 2022 and 2028¹⁸. As a member of several free trade agreements, India has access to well-established and emerging pharmaceutical markets in the Asia-Pacific region. This growth is expected to be driven by factors such as lower manufacturing costs, the availability of skilled labour, and the presence of certified manufacturing plants.

According to market reports, the global salicylic acid market is projected to reach a valuation of US$ 417.8 million in 2022 and US$ 814.2 million by 2032, indicating a CAGR of 6.9% from 2022 to 2032. The salicylic acid market on a global scale is characterized by high fragmentation, with a limited number of manufacturers offering different price structures that are application-specific. The market is witnessing a surge in sales due to increasing consumer awareness of the various benefits of salicylic acid. The use of salicylic acid derivatives as ointments, including chlorine salicylate and methyl salicylate, is also expected to rise, thereby contributing to the demand for salicylic acid. Aspirin, which is commonly made from a significant amount of salicylic acid, is projected to witness an increase in demand due to its superior pain-relieving properties and easy availability. The market is further expected to be driven by the increasing demand for packaged foods and beverages. However, concerns about the side effects of salicylic acid may potentially affect the markets growth.

Company overview

AMI Organics (AMI) is a research-and development-oriented producer of speciality chemicals with diverse applications. It is primarily concerned with the development and manufacturing of advanced pharmaceutical intermediates. These intermediates are primarily utilised in regulated and generic Active Pharmaceutical Ingredients (APIs), new chemical entities (NCEs), and as key initial components for agrochemicals and fine chemicals.

The key APIs for which the Company manufactures intermediates include Trazodone, Entacapone, Oxcarbazepine, Nintedanib, Apixaban and Rivaroxaban. Moreover, these pharmaceutical intermediaries find extensive application across an array of burgeoning medicinal fields, marking the Companys contribution to the pharmaceutical industry.

A crucial cornerstone of the Company is its cutting-edge inhouse Research and Development facility, which has been duly acknowledged by the Department of Scientific and Industrial Research (DSIR) in India. This facility houses a team of highly qualified scientists and researchers who are committed to the progression and enhancement of the Companys product portfolio. Their firm dedication ensures consistent innovation in line with the Companys mission. In addition, the Companys quality control laboratory, reflects its pledge to exceptional product quality. This is achieved through rigorous testing and monitoring procedures which ensure that every product matches the Companys high standards.

The combination of advanced facilities, a dedicated team, and a customer-centric approach enables the Company to carve out a reputable position within the specialty chemicals industry. These factors collectively mark AMI Organics as a reliable and highly competent player in the market.

Pharma intermediates business:

The Company develops, manufactures and commercialises advanced pharma intermediates used for manufacturing API and NCE in India and overseas markets. Since inception, it has created over 520 pharmaceutical intermediates in 17 different therapeutic areas, which are supplied to over 160 customers. The Company has a strong customer base with more than 1 product with all the major customers. It caters to several therapeutic areas, including antiretroviral, anti-inflammatory, anti-psychotic, anti-cancer, anti-Parkinson?s, antidepressant and anticoagulant.

Speciality chemicals:

The Company produces specialised chemicals, primarily chemical components used in agrochemicals and fine chemicals and has diversified its commercialised product line over time. Preservatives, cosmetics and agrochemicals are just few of the many end-user groups that the Company offers to domestic as well as international customers. With the acquisition of Gujarat Organics Limited, the total manufacturing capacity of the Company has increased from 2460 to 6060 MTPA. The Company has expanded its existing product portfolio of speciality chemicals to also include capabilities to manufacture preservatives and other speciality chemicals used in the manufacture of cosmetics, dyes, polymers, petrochemicals and agrochemicals.

Growth enablers

Deploying innovative technologies for cost efficiency

With fierce competition in the industry in which the Company operates, technology plays a crucial role in sustaining the Company?s position as a leading market player. As the Company?s industry peers continuously keep abreast with latest technology, it strives to keep its technology, facilities as well as machinery up to date by upgrading them following the latest international standards. Additionally, the Company seeks to position itself as a prominent market player both globally by embracing the most recent technological changes and being cognizant of ongoing technological advancements to ensure cost effectiveness.

Consistently focusing on developing advanced pharmaceuticals intermediaries

The Company tirelessly strives to leverage cutting-edge technology to make existing API products and processes cost-effective while expanding its product line through R&D expenditures. The Company is prioritising its market expansion in the manufacturing of a series of advance pharmaceutical intermediaries for APIs and NCE. In line with the objective of selling and promoting its products in the European Union, the Company has also obtained REACH registration, which has enabled it to become a ‘preferred supplier? to its clients in that region.

Leveraging the cost advantage

In an increasingly regulated global context, the Company?s high-volume business strategy and high product purity levels provide stability and reliability for its product supply, making it less vulnerable to demand-supply variations that negatively affect other industry players. The Company selects more than two vendors for the supply of each raw material vertical, thereby gaining an advantage of better negotiating power for securing its raw material requirements. Additionally, it utilises various means to reduce the cost of production, such as bulk commercial production of advanced pharmaceutical intermediates for the generic APIs and NCE, and uses electricity for production instead of natural gas.

Diversification of business by focusing on organic and inorganic growth opportunities:

The Company keeps exploring strategic partnerships and acquisitions to advance internal knowledge and inorganic growth. To achieve the desired level of organic development, the Company intends to increase internal capacity and manufacturing capabilities along with research and development. It believes that pursuing strategic acquisitions such as GOL will enhance its capabilities and technical knowhow. Additionally, forming new partnerships will enable it to strengthen its product portfolio and manufacturing capabilities in the speciality chemicals sector.

Challenges and risks

Challenges concerning non-compliance for any facility could affect performance:

The Company is part of a highly regulated industry. It deals in advanced pharmaceutical intermediates and must adhere to various regulations and quality standards. The production facilities and products may be subject to audit and inspection by Indian as well as foreign regulatory bodies (including the US FDA), as the Company offers its products to customers across several international markets. Any anomalies could impede production, which would impact the Companys reputation as well as financial performance.

Inability to pass on higher RMAT costs can impact performance:

The Company requires other commodity materials such as ethyl alcohol, dimethylformamide, isopropyl alcohol, toluene, caustic soda, benzene and alkalis. Most of its contracts with raw material suppliers are short-term. Working capital, the Companys operations and commercial performance may all suffer considerably as a result of the Companys inability to predict demand and supply effectively.

Environmental, health and safety (‘EHS?) laws, rules, and requirements becoming increasingly stringent:

The Company?s manufacturing facilities are subject to several laws that are meant to safeguard the environment. The Company anticipates that more environmental regulations will be added in the future. The Company?s operations generate waste and contaminants, some of which may be dangerous and flammable. As a result, the Company must abide by several laws and government regulations, including those pertaining to environmental and occupational health and safety. Any noncompliance on its part regarding any current or future regulations that apply to it may result in business loss and legal proceedings.

Risk management

Risks Faced	Risk Description	Mitigation Strategy
Geopolitical risk	Risks associated with geopolitical tensions include supply chain disruptions and inflation, which can adversely impact the Company?s operations.	• The Company?s global footprint ensures that it is protected from momentary slowdown in any particular region due to the vast scope of its operations.
		• The products developed by the Company find application in several specialised fields, which safeguards them from these risks.
Operational risk	Operational risks that the manufacturing facilities must deal with include equipment breakdown or failure, interruptions in the power supply or processes, performance below planned output levels, efficiency, labour disputes, strikes, environmental challenges, lockdowns and the inability to obtain services from external contractors.	The Company complies with cGMP guidelines, which include -
		• well-designed and maintained equipment and facilities
		• established standard operating procedures (SOPs)
		• an independent quality assurance unit
		• competent employees and management
		• adherence to and correct documentation of process and product controls as well as lab controls required for drug quality assurance.
Technology risk	The risks associated with the expenditures for creating new products and technologies, upgrading manufacturing facilities and retaining research employees. They have a substantial impact on the Company?s operating results and cash flow.	• To build its product pipeline, the Company devotes a large amount of time, money and other resources to R&D.
		• Ami Organics adapts to quick changes in the industry as a result of technological and scientific advancements. The business ensures that equipment, facilities and technology adhere to the latest international standards.
Risks Faced	Risk Description	Mitigation Strategy
Raw Material risk	The Company may not be able to efficiently pass on any rise in raw material costs to customers, leaving margins, sales, operational results and cash flow exposed to changes in raw material availability and prices.	• The Company has multiple vendors for each vertical of raw material supply and hence can manage the risk of the sudden unavailability of one vendor efficiently.
		• To maintain cost-competitive prices, the Company prefers to place purchase orders from vendors at regular intervals rather than sign long-term contracts with specific suppliers.
Product risk	The changes in consumer demand may compel the Company to stop existing or planned product development. If appropriate investments are not made in a timely manner, the Companys business, brand and financial standing may suffer severely.	• AMI Organics develops, tests and manufactures cutting- edge products that meet regulatory requirements and secure the required regulatory approvals to remain competitive.
		• The business? finances are secure, which allows them to deal with unforeseen circumstances.
Demand risk	Due to fluctuations in product demand, the actual production numbers may vary dramatically from the estimates.	• The Company often looks to make up for any shortages through new orders, either with existing or new customers.
Forex risk	The majority of sales and purchases at the Company, which has a global reach, are made in foreign currencies. Therefore, it is exposed to foreign exchange risks.	• The Company thoroughly evaluates the exchange rate risks brought on by foreign exchange transactions and uses derivatives, such as foreign exchange forward contracts, to reduce exposure.
		• To help mitigate the risk of currency exchange, the Company makes purchases of goods, commodities and services in the relevant currencies.
Customer risk	The demand from customers, particularly the top five customers, determines revenue levels and operational performance. Sales are directly impacted by customer output and inventory levels.	• AMI Organics has developed several enduring relationships with clients both domestically and internationally.
		• Purchase orders from key clients serve as the foundation for sales to the Company. With the aid of estimations of customer order volumes, the Company forecasts production volumes and income for certain products.
Environmental risk	If the Company fails to abide by present and future environmental rules and regulations, it could face penalties in the long run or have its production halted, which could have an adverse effect on its operations or financial performance.	• The Company has incurred significant capital expenditure to install machinery and equipment to regulate the discharge of effluents. These include a Zero Liquid Discharge based effluent plant, a soil biological treatment system and a RO plant with a pre-treatment system.
		• All the manufacturing units of the Company are ISO 9001:2015, ISO 14001:2015 certified
Competition risk	Due to the intense competition, Ami Organics faces the risk of losing revenue from customers that are acquired by the Companys competitors. The competitors might also poach important raw material suppliers which will harm the business as well as the financial position of the Company.	• By being able to differentiate its products and ensure their efficient and timely delivery, the Company strengthens its capability to compete successfully. • The Company remains competitive in the market by being able to reduce costs through enhanced productivity, the elimination of redundancies and consistent technological innovation.

Human resources

The Company values its human capital as its most essential asset. It acknowledges that the growth of the Company over the years is an outcome of the dedicated efforts of its team members. As the Company operates in a dynamic operating environment, it is making prudent investments in the training and development of its personnel to ensure that they are kept abreast of evolving market trends. Additionally, it endeavours to create a diverse workplace so that its people can grow while developing relevant skills. As of March 31, 2023, the Company had a total of 602 employees.

Particulars	Numerator/ Denominator	UoM	As of March 31, 2023	As of March 31, 2022	Change in %	Remark for Daviation
(a) Current Ratio	Current Assets Current Liabilities	Times	2.87	3.30	-12.85%	-
(b) Debt-Equity Ratio	Total Debts Equity	Times	0.01	0.00	251.27%	Repayment of Debt in FY 2022 through IPO proceed.
(c) Debt Service Coverage Ratio	Earning available for Debt Service Interest+ Instalments	Times	316.17	0.61	51731.15%	Repayment of Debt in FY 2022 through IPO proceed.
(d) Return on Equity Ratio	Profit after Tax Average Shareholder?s Equity	Percentage	0.15	0.21	-28.57%	IPO in sept-2021 leads to significant change in denominator for FY 2023
(e) Inventory turnover ratio	Total Turnover Average Inventories	Times	2.86	3.16	-9.49%	-
(f) Trade receivables turnover ratio	Total Turnover Average Account Receivable	Times	3.15	3.71	-15.09%
(g) Trade payables turnover ratio	Total Purchases Average Account Payable	Times	2.58	3.17	-18.61%
(h) Net capital turnover ratio	Total Turnover Net Working Capital	Times	2.14	1.73	23.93%	-
(i) Net profit ratio	Net Profit Total Turnover	Percentage	13.51%	13.83%	-2.31%	-
(j) Return on Capital employed	Net Profit Capital Employed	Percentage	19.21%	18.49%	3.89%

Internal control systems and their adequacy

The Company has comprehensive internal control systems commensurate with the nature of its business and the size and complexity of its operations. They provide reasonable assurance on the effectiveness and efficiency of its operations, the reliability of financial reporting and compliance with the applicable laws and regulations. The internal control systems that deploy an amalgam of modern and traditional processes are routinely tested and upgraded for both design and operational effectiveness by the Management and the same is audited by the Statutory Auditors. Significant audit observations, followup actions and recommendations thereon are also reported to the Senior Management and the Audit Committee for their review. The Company has appointed M/S. K.C. Mehta & Co. (Chartered Accountants), a reputed audit firm specialising in internal audits and assurance. The annual internal audit plan is reviewed and approved by the Audit Committee at the beginning

of the financial year to ensure adequate coverage. The progress of the internal audit plan, significant observations noted during internal audits and status of identified actions are reviewed by the Management periodically and by the Audit Committee on a quarterly basis.

Cautionary statement

Statements in Management Discussion and Analysis describing the Company?s objectives, projections, estimates, expectations may be ‘forward-looking statements? within the meaning of applicable securities law and regulations. Actual results may differ materially from those expressed or implied. Important factors that could make a difference to results include economic conditions affecting demand and supply, price conditions in domestic and overseas markets in which the Company operates, competitive pressures in these markets, changes in government regulations, tax laws and other statutes, as well as incidental factors.