Bafna Pharmaceuticals Ltd Management Discussions.

Economic & Industry Overview

By 2020, the Pharma industry is expected to record a CAGR of 16.5 per cent. The total industry size is expected to touch US$ 160 billion by 2017 and US$ 280 billion by 2020. Hence an attempt had been made to study the trends and patterns of FDI into Healthcare sector from 2012 to 2015. To fulfill this objective the data collected from secondary sources which is purely an Empirical study, reveals that the total FDI inflow into healthcare sector of India from 2012 to 2015 has shown a positive trend.

The world population is expected to grow around 8 billion by 2050. Presently there has been increase in number of people having access to the healthcare. Global spending on medicine is expected to reach USD 1.2 trillion by the end of 2016.

It is also expected that in-organic investments will gain momentum in the medium-term as companies plan to create stronger presence in emerging markets and build expertise in select therapy areas.

Stringent regulatory norms like the Notification of new pricing policy is going to have a great impact on the whole industry by capping of prices of 348 essential medicines based on the arithmetic average of prices of all drugs in a particular segment with more than one per cent market share. Any company changing composition of any of these drugs will need to seek a separate price approval from the regulator or empowered committee and prices will be reviewed periodically. It is estimated that around 30 per cent of the Pharma market would come under price control as compared to 17 per cent previously. The Company manages its product portfolio so as to move away, reduce and minimize the product weight age of drugs under price control.

India‘s pharmaceutical industry is at an advantageous position compared to other emerging countries.

The Indian pharmaceutical market is expected to grow at a compound annual growth rate (CAGR) of 14-17 per cent over 2012-17. India is now among the top five pharmaceutical emerging markets. The outlook on the Indian pharmaceutical industry remains favorable, according to a report by ICRA and Moodys.

Risks and concerns

The road ahead is challenging for the Global and Indian pharmaceutical sector. The competition is expected to be more aggressive leading to price pressures. Uncertainty in global economic growth coupled with inflationary pressures is expected to impact the growth rate in India and consequently the

Company‘s operations. Pharmaceuticals markets both domestic and international are more prone to regulatory risks apart from regular business risks.

Risk management is integral part of the companys plans, business strategies, monitoring systems and results. It takes in all organizational processes geared to early risk detection, identification and timely implementation of appropriate counter-measures.

Your company constantly reviews its policies and procedures to adhere to ensure conformity to the various regulatory approvals for its manufacturing facilities.

Your company constantly reviews its policies and procedures to adhere to ensure conformity to the various regulatory approvals for its manufacturing facilities.

Company Overview

Internationally, our focus is on expanding the revenue from registered products and applying for registration of products enabling for more revenue generation opportunities.

Your company continues to work towards optimizing the capacities of its manufacturing facilities and also on adding additional capacities aimed at the business opportunities available in line with its strategy. Your Company will try to ensure that it remains competitive in market, in costs and will manage the business more dynamically.

The growth achieved by the company during the last few years has set the pace for future growth. We now feel that the fundamentals are in place and your company is well equipped to meet the future challenges on the strength of its state of the art Manufacturing facilities and R & D wing. Our expanding customer base is a great boon & motivating factor for the company.

The company is in growth/expansion mode requiring further investment and hence we are evaluating various options to raise additional funds.

We are and will be investing in building the necessary system and infrastructure required to manage our growth. We will continue to invest in our manufacturing facilities, R & D, registrations and programs to build revenue. We have acquired and expect to acquire business and technologies as and when the opportunity presents itself.

The company plans to improve EBIDTA margins by following modes:

• Focus on increasing revenue from contract manufacturing in regulated markets.

• Increase volume from existing emerging markets & further increase revenue by introducing new products.

• Expand to new geographies.

• Focus on FR&D for launching new products.

• Focus on export to Africa, UK and CIS Countries.

Bafna Pharma s Global footprint

S.NO NAME OF COUNTRY NO OF APPROVALS NO .OF APPLICATIONS PENDING FOR REGISTRATION
1 Sri Lanka 75 32
2 Nepal 16 -
3 Myanmar 2 -
4 Nigeria 27 6
5 Uzbekistan 3 -
6 Vietnam 3 9
7 Ghana 16 -
8 Kyrgyzstan 4 -
9 Georgia 2 -
10 Philippines 7 19
11 Yemen 3 -
12 Colombia 1 -
13 Peru 1 4
14 Honduras 3 -
15 Ukraine 15 10
16 Russia - 4
17 UAE 3 -
18 Tanzania - 9
19 Tajikistan 1 1
20 Kazakhstan - 4
21 Ethiopia 4 3
22 Cameroon - 6
TOTAL 186 107

Performance and operations review

In view of the strategic decision by Bafna Pharma, we aim to increase the revenue growth in the years to come.

Consolidated Operating Results

The consolidated sales and operating income decreased to Rs.87.30 Cr from Rs. 143.68 Cr in the previous year and decline in growth rate of 60.76%. The consolidated operating profit for the year was Rs. 1.05 Cr as against Rs. 14.89 Cr in the previous year. The consolidated net loss for the year is Rs (14.03) Cr as against FY 2014 of Rs. 6.18 Cr.

Stand-alone Operating Results

The sales and operating income increased to Rs. 86.56 Cr from Rs. 143.66 in the previous year decline a growth rate of 60.25%. The operating profit for the year under review is Rs. 8.42 Cr as against Rs. 14.00 Cr in the previous year. The profit after tax for the year under review is Rs. (12.18) Cr as against Rs. 6.10 Cr in the previous year.

Internal Control Systems

The company has reasonable internal control systems, with defined guidelines on compliance, which enables it to run its facilities and head office with a fair degree of comfort.

Internal Audit is being undertaken by Independent Auditor Mr. Gaurav Jain, Chartered Accountant, Chennai.

Internal controls are implemented to safeguard its assets, to keep constant check on cost structure, to provide adequate financial and accounting controls and implement accounting standards. The system incorporates continuous monitoring, routine reporting, checks and balances, purchase policies, authorization and delegation procedures and audit etc.

Internal controls are adequately supported by Internal Audit and periodic review by the management.

The Audit Committee meets periodically to review with the management, statutory auditors and with the internal auditors, adequacy / scope of internal audit function, significant findings and follow up thereon and findings of any abnormal nature.

The system is improved and modified continuously to meet with changes in business condition, statutory and accounting requirements.

Material Development in Human Resources / Industrial Relations Front

The number of employees as on 31st March, 2016 was 241 as against 251 during FY 15, a net decrease of 10 employees.

The growth attained by the Company is largely a function of the competence and quality of its human resources. The work environment is very challenging and performance-oriented, recognizing employee potentials by providing them with adequate opportunities. We have made efforts to discipline our hiring process. Acquisition and retention of talent which is in line with your company‘s goals continues to be a major thrust area.

On behalf of the Board of Directors
For BAFNA PHARMACEUTICALS LIMITED
(CIN L24294TN1995PLC030698)
Bafna Mahaveer Chand
Date: 30.05.2016 (DIN: 01458211)
Place: Chennai Chairman & Managing Director

Auditors Certificate on Compliance

Auditors Certificate regarding compliance with the conditions of Corporate Governance under Clause 49 of the Listing Agreement.

To

The Members of BAFNA PHARMACEUTICALS LIMITED

We have examined the compliance of conditions of Corporate Governance by Bafna Pharmaceuticals Limited (the Company) for the year ended on 31st March, 2016 as stipulated in Clause 49 of the Listing Agreement of the said Company with the stock exchanges.

The Compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the company for ensuring the compliance of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the company.

In our opinion and to the best of our information and explanations given to us, we certify that the company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement.

With respect to investor grievances, no grievances were received during the year ended 31st March, 2016 and closing balance of investor grievances is Nil.

We further state that such Compliance is neither an assurance as to the future viability of the company nor the efficiency or effectiveness with which the management has conducted the affairs of the company.

For ABHAY JAIN & CO.
Chartered Accountants
FRN: 000008S
(A.K.JAIN)
Place: Chennai Partner
Date: 30.05.2016 M.No.70224