Auro Laboratories Ltd Management Discussions

A. INDUSTRY STRUCTURE AND DEVELOPMENTS

Global Pharma Industry Review:

The world pharmaceutical industry is one of the top performing industries globally. New medications are constantly being developed, approved and marketed, resulting in significant market growth. Other market growth drivers include the aging population, as seniors use more medicines per capita and there is a rise in the prevalence and treatment of chronic diseases.

The revenue in this sector is anticipated to exhibit an annual growth rate (CAGR 2024-2028) of 6.19%, resulting in a market volume of US$1,470.00bn by 2028. https://www.statista.com/outlook/hmo/pharmaceuticals/worldwide

Indian Pharma Industry Review:

The Indian pharmaceutical industry ranks third globally in pharmaceutical production by volume and is known for its generic medicines and low-cost vaccines. India is one of the biggest suppliers of low-cost vaccines in the world. Major segments of Indian Pharmaceutical Industry include generic drugs, OTC medicines, bulk drugs, vaccines, contract research & manufacturing, biosimilars and biologics. Because of the low price and high quality, Indian medicines are preferred worldwide, making it “pharmacy of the world”.

The pharmaceutical industry in India is currently valued at $50 Bn. India is a major exporter of Pharmaceuticals, with over 200+ countries served by Indian pharma exports. India supplies over 50% of Africas requirement for generics, ~40% of generic demand in the US and ~25% of all medicine in the UK. India also accounts for ~60% of global vaccine demand, and is a leading supplier of DPT, BCG and Measles vaccines. 70% of WHOs vaccines (as per the essential Immunization schedule) are sourced from India. https://www.investindia.gov.in/sector/pharmaceuticals

The Indian pharmaceutical industry is projected to grow at a CAGR of over 10% to reach a size of US$ 130 billion by 2030. https://www.ibef.org/industry/pharmaceutical-india

Key Trends in the Pharma Industry

Changing Government and Regulatory Landscape- Tightening of policy and faster regulatory approvals are increasing competition, requiring companies to be right ‘first time. With increased vigilance from regulators, a focus on quality assurance and control has become even more critical.

Shifting Industry Dynamics- shift from “Make in India” to “Develop in India”, increased globalization, a focus on value addition versus pricing, and change from a competitive to collaborative mind-set

Emergence of New Go-to-Market Models- managing multiple channels and consumers is becoming increasingly critical. The rising role of pharmacists vs. physicians, and patient empowerment are drivers.

Digital: Backbone of Transformation- To remain competitive, companies need to demonstrate agility in responding to the changing relationship dynamics triggered by new digital players, and invest in data and analytics capabilities.

Active pharmaceutical ingredient:

The Active Pharmaceutical Ingredient (API) is the vital, biologically active compound in pharmaceutical products driving therapeutic effects. Whether chemically synthesized or sourced from nature, APIs play a pivotal role globally in the pharmaceutical supply chain, serving as the foundation for drug development and manufacturing. As the pharmaceutical industry evolves towards cutting-edge therapeutics and innovative delivery systems, the demand for sophisticated APIs is likely to increase.

Global API Market

The global active pharmaceutical ingredients market size was estimated at USD 237.47 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 5.75% from 2024 to 2030. Advancements in Active Pharmaceutical Ingredient (API) manufacturing, growth of the biopharmaceutical sector, and an increase in geriatric population are among the key drivers of API market. An increase in prevalence of chronic diseases, such as cardiovascular diseases and cancer, is anticipated to boost market growth.

(https://www.grandviewresearch.com/industry-analysis/active-pharmaceutical-ingredients-market)

Favorable government policies for API production, along with changes in geopolitical situations, are boosting market growth. The API market is undergoing immense changes due to supply chain disruption by COVID-19. Countries such as India are being preferred over China for the export of API owing to geopolitical situations and the demand to reduce dependence on China for API products. Furthermore, governments of many countries have formulated plans and granted incentives to promote the production of API.

Indian API market

The India active pharmaceutical ingredients market size was estimated at USD 18.29 billion in 2023 and is expected to grow at a CAGR of 7.7% from 2024 to 2030. https://www.grandviewresearch.com/industry-analysis/india-active-pharmaceutical-ingredients-market-report

The key factors boosting the growth of the active pharmaceutical ingredients market are the rising drug research, rapid technological advancements and development activities for drug manufacturing, the increasing importance of generics, and the increasing uptake o f biopharmaceuticals. However, the unfavourable drug price control policies across various nations and high manufacturing costs are expected to hinder the markets growth.

Business Overview:

Auro Laboratories Limited has been manufacturing and providing generic Active Pharmaceutical Ingredients (API) since its inception in 1992. Currently, the company is specializing in producing Anti Diabetics like Metformin HCL. It is the first-line treatment for type 2 diabetes.

The Company is headquartered in Mumbai and it has its manufacturing facility at Palghar in Maharashtra. The facility has all the required certifications from Indian authorities and European registration organization. The business has grown over the past many quarters and the results are indicative of the investments and planning done by the company over the past few years.

Anti Diabetics:

Diabetes is a chronic disease that occurs when the body cannot effectively use the produced insulin or the pancreas does not produce sufficient insulin. Diabetes is of two types: type 1 and type 2. About 90% of people with diabetes have type 2 diabetes. According to government and private organizations operating in the diabetes industry, diabetes is considered one of the top fatal diseases. The rising prevalence of diabetes worldwide is expected to drive the global market growth by 2027.

Metformin hydrochloride is the raw material of finished product metformin hydrochloride drugs. That is the API metformin hydrochloride. Metformin Hydrochloride finished product is an oral antihyperglycemic drug used in the management of type 2-diabetes.

B. OPPORTUNITIES, THREATS, OUTLOOK, RISKS AND CONCERNS

Opportunities:

The India Oral Anti-Diabetic Drug Market size is expected to grow from USD 1,636.90 million in 2023 to USD 1,944.12 million by 2028, at a CAGR of 3.50% during the forecast period (2023-2028). https://www.mordorintelligence.com/industry-reports/india-oral-anti-diabetic-drug-market#:~:text=The%20India%20Oral%20Anti%2DDiabetic,by%20almost%2025%25%20in%20India.

The global Metformin Hydrochloride market was valued at USD 257.5 million in 2023 and is anticipated to reach USD 342.3 million by 2030, witnessing a CAGR of 4.1% during the forecast period 2023-2030. https://www.marketwatch.com/press-release/2030-metformin-hydrochloride-market-size-share-2023-06-14#:~:text=The%20global%20Metformin%20Hydrochloride%20market%20was%20valued%20at%20USD%20257.5,the% 20forecast%20period%202023%2D2030.

In view of the same, the company is well placed to grow as the demand for the product grows coupled with the fact that this product is the fundamental product to control Type-2 Diabetes.

Threats & Concerns:

There is significant competition from other Generic manufacturers both within India and foreign, however the markets and volumes are quite large. Further, the governments actions towards price controls on pharmaceutical products might affect the price of the products in the coming times. The ongoing geopolitical crises have led to supply chain disruptions and rising cost of raw materials. Your company is also prone to these near-term risks.

The pandemics impact on the API market The API market encountered significant challenges during the recent global health crisis. Disruptions in worldwide supply chains and logistical hurdles, including transportation restrictions and delays, impeded the timely acquisition of raw materials and the distribution of finished dosage forms. Moreover, stringent regulatory measures and increased scrutiny of the pharmaceutical supply chain introduced complexities, resulting in delays in production and approval processes. These collective challenges not only impacted production capacity but also highlighted the need for resilience and adaptability in the API market, but there are vulnerabilities due to the regional dominance and lack of global spread.

Strengths

The company with existing registrations and regulatory approvals has an established customer base in India and in various foreign countries that will enable it to further enhance their growth.

Further, the enhanced manufacturing capacity is due to come online this year and enable us to cater to the increased demand from current and prospective customers.

Outlook:

The rise in the aging population is one of the major drivers of the pharmaceutical API manufacturing market. As the aging population increases, the demand for pharmaceutical drugs also increases. API acts as a specialty drug in these medicines to cure a particular disease. For instance, in October 2022, according to an article shared by WHO, a Switzerland-based specialized agency of the United Nations responsible for international public health, 80% of senior citizens will reside in low- and middle-income nations by 2050.

The rise in chronic conditions is expected to propel the pharmaceutical API manufacturing market going forward. Chronic conditions, also known as chronic diseases, refer to long-term health conditions that last for extended periods, often for a persons entire life, and typically cannot be cured completely. The quality, effectiveness, and safety of the medication depend largely on the API used. Pharmaceutical API manufacturing helps to produce essential medications for managing chronic diseases. Or instance, in 2023, according to the National Library of Medicine, a US-based government medical library, by 2035, nearly 36% of US adults aged 50 and older are projected to have at least one chronic condition, with this number anticipated to rise to almost 48% by 2050. Therefore, the rise in chronic conditions is driving the pharmaceutical API manufacturing market.

The outlook is positive for the company considering its product mix, market conditions and the expected increase in the demand of its Anti-Diabetic product. The focus is to operate with the highest Environment, Health and Safety standards, while improving efficiencies, unit costs and ensuring business continuity.

C. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Companys defined organizational structure, documented policy guidelines and adequate internal controls ensure efficiency of operations, compliance with internal policies, applicable laws and regulations, protection of resources and assets and accurate reporting of financial transactions. The Company continuously upgrades these systems in line with best available practices.

D. HUMAN RESOURCES

Human resources continue to be one of the critical assets of the organization. Attracting relevant talent remains the Companys key focus. It pays special attention to training, welfare and safety of its people, strengthening human capabilities. As of March 31, 2024, your company boasted a workforce of 66 employees, diligently working and dedicated to the companys goals.

E. INVESTOR RELATIONS AND ENGAGEMENT:

Investor Relations (IR) is playing an increasingly important role in todays volatile world in enabling companies to manage investor expectations. The objectives of Companys investor relations activities are to boost confidence and develop a long-term relationship of trust with stakeholders including Shareholders, Investors & Analysts, through true and fair disclosure of information. To pursue these objectives at all times, your Company continuously discloses necessary information.

F. SEGMENT WISE OR PRODUCT-WISE PERFORMANCE

The Company is a single segment Company engaged in the business of Bulk Drugs. The Companys revenue from operations stands at Rs. 5362.52 Lakhs for the year ended March 31, 2024.

G. FINANCIAL PERFORMANCE

A detailed financial overview of the Company for the FY 2023-2024 is available in the first page of the Boards Report forming part of this Annual Report.

H. KEY FINANCIAL RATIOS

Ratio	Formula	FY 2024	FY 2023	Variance
Debt-Equity Ratio (times)	Total Borrowings/Shareholders equity	0.63	0.19	233.55%
EBITDA %	EBITDA/Revenue from operations	22.70%	10.08%	125.08%
Current Ratio (times)	Current assets/ current liabilities	1.29	1.97	-34.87%
Return on Net Worth (%)	Profit after Tax (excl. exceptional)/ Shareholders equity	18.57%	7.14%	160.09%
Debtors turnover ratio (days)	Sale of products/ Average accounts receivables	4.14	4.26	-2.96%
Inventory turnover (times)	Cost of Goods sold/ Average inventories	6.12	8.35	-26.88%
Operating profit margin (%)	Profit from Operations/Sale of Products	20.66%	8.05%	156.54%
Net profit Margin (%)	Profit after Tax (excl. exceptional)/ Revenue from operations	1453%	4.62%	214.68%

Reasons where Variance is More than 25%

Debt Equity ratio has increased due to borrowings taken for expansion project to increase the production capacity. EBITDA % The EBIDTA% improved due to substantial increase in EBIDTA. Current ratio has reduced due to reduction in inventory and cash and cash equivalents. Return on Net worth-improved due to increase in Net Profit after tax. Inventory turnover ratio decreased due to reduced purchase resulting in reduced cost of goods sold. Operating Profit Margin increased due to increase in Profit from Operations Net profit Margin increased due to increase in Profit after Tax.

Management discussion and analysis report contains statements which are forward looking based on assumptions. Actual results may differ from those expressed or implied due to risk and uncertainties which have been detailed in this report. Several factors as listed in this report could make significant difference to the Companys operations. Investors, therefore, are requested to make their own independent judgments and seek professional advice before taking any investment decisions.

	For and on behalf of the Board of Directors
	Auro Laboratories Limited
	(Sharat Deorah)
CIN: L33125MH1989PLC051910	Chairman and Managing Director
Mumbai, May 25, 2024	DIN: 00230784