Bafna Pharmaceuticals Ltd Management Discussions.

Global overview:

The global pharmaceuticals market is expected to grow from $1454.66 billion in 2021 to $1587.05 billion in 2022 at a compound annual growth rate (CAGR) of 9.1%. The growth is mainly due to the companies rearranging their operations and recovering from the COVID-19 impact, which had earlier led to restrictive containment measures involving social distancing, remote working, and the closure of commercial activities that resulted in operational challenges. The market is expected to reach $2135.18 billion in 2026 at a CAGR of 7.7%.

Source: Pharmaceuticals global market report 2022

INDIAN PHARMACEUTICAL OVERVIEW

India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers with the potential to steer the industry ahead to greater heights. Presently, over 80% of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

Contributing immensely to global health, the Indian pharmaceutical industry by volume is the 3rd largest in the world. In (2021-2022) FY22, the pharmaceutical industry recorded a growth of 9-11 per cent which was mainly driven by a push from emerging and domestic markets. By showing strength and commitment amid the disruption caused by the pandemic, the industry not only exhibited its ability to provide adequate medicines but contributed significantly to other areas like sanitation, preventive healthcare and quarantine facilities. It was through careful evaluation of the possible use of available drugs along with innovative approaches to fight the pandemic, the industry was able to overcome the challenges posed by COVID-19. Going forward to 2022, it is expected that the Indian pharmaceutical industry will foster a culture of R&D and innovation to enable rapid drug discovery and development to improve the health outcomes of people worldwide.

Indian pharmaceuticals value added output is forecasted to grow more than 6% annually in 2022 and in 2023, due to the ongoing rollout of Covid-19 vaccinations, a rebound in non-Covid related medical treatments and a surge in generic drug exports. However, in H1 of 2022, drug producers still face pressure on gross margins, due to high commodity and transport costs. Domestic wholesalers and pharmacies continue to generate low, but stable margins.

Due to a serious supply disruption in 2020, Indian drug producers intend to increase local production of Active Pharmaceutical Ingredients (APIs) in order to reduce their reliance on Chinese deliveries. Those imports have meanwhile rebounded, but are not yet back to pre-pandemic levels. The government has announced a large incentive scheme (e.g. with tax exemptions) to boost local API production, which will last until 2030.

Exports

The Indian pharma sector recorded its best-ever exports performance in 2021-22, with a remarkable growth of almost $10 billion in 8 years. The countrys pharma sector witnessed a growth of 103% since 2013-14, from INR 90,415 crore in 2013-14 to INR 1,83,422 crore in 2021-22. Amid the Covid despair in 2020-21, the industry had registered a sharp growth by achieving an export of $24.4 billion with a year-on-year (y-o-y) growth of 18%.

Indian pharmaceutical exports stood at US$ 24.44 billion in FY21 and US$ 22.21 billion in FY22 (until February 2022). India is the 12th largest exporter of medical goods in the world. The countrys pharmaceutical sector contributes 6.6% to the total merchandise exports. As of May 2021, India supplied a total of 586.4 lakh COVID-19 vaccines, comprising grants (81.3 lakh), commercial exports (339.7 lakh) and exports under the COVAX platform (165.5 lakh), to 71 countries. Indian drugs are exported to more than 200 countries in the world. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. Indias drugs and pharmaceuticals exports stood at US$ 3.76 billion between April 2021 and May 2021. The Indian drugs and pharmaceuticals sector received cumulative FDIs worth US$ 19.19 billion between April -December 2021. The foreign direct investment (FDI) inflows in the Indian drugs and pharmaceuticals sector reached US$ 1.206 billion between April-December 2021.

Recently, India also signed cooperation agreement with UAE and Australia, which will give enhanced access to Indian pharma products to these markets.

Building on the outstanding performance in the previous FY21, Indian pharma exports once again registered a healthy performance in 2021-22. The pharma exports in 2021-22 sustained a positive growth despite the global trade disruptions and drop in demand for Covid related medicines.

Source: Press release by Ministry of commerce and industry

R&D spending in Indian pharmaceuticals

The Indian pharmaceutical industry is now seeking to move up the global pharmaceutical value chain by investing in R&D for drug development, drug repurposing, process improvements and digital manufacturing.

As per the Union Budget 2022-23, INR 3,201 crore (US$ 419.2 million) has been set aside for research and INR. 83,000 crore (US$ 10.86 billion) has been allocated for the Ministry of Health and Family Welfare

India plans to set up a nearly INR 1 lakh crore (US$ 1.3 billion) fund to provide boost to companies to manufacture pharmaceutical ingredients domestically.

RISK AND CONCERNS

1. Exchange rate fluctuations

2. Evolving competition

3. Global crisis including war

4. Restriction on exports

COMPANY OVERVIEW

Our Companys prime focus is to expand revenue from registered products globally and continue to apply for registration to generate opportunities.

Bafna pharmas global foot print -

S.No Name of Country No. of Products Approvals No. of Application Pending for Registration
1 AZERBAIJAN 1 2
2 AUSTRALIA 6
3 BOLIVIA 1
4 CAMBODIA 2 7
5 CAMEROON 6 -
6 DEMOCRATIC REPUBLIC OF THE CONGO - 4
7 ETHIOPIA 6 20
8 GHANA 9
9 GUATEMALA 1 -
10 HONDURAS 4 9
11 KAZAKHSTAN 2 -
12 KENYA 5 -
13 MAURITIUS 7 -
14 MADAGASCAR - 9
15 MYANMAR 1 -
16 NEPAL 10 24
17 NIGERIA 39 24
18 PERU 2 -
19 PHILIPPINES 21 25
20 RUSSIA 1
21 RWANDA 9
22 SRI LANKA 39 23
23 TANZANIA 10 21
24 UGANDA 9
25 UK 1
26 UKRAINE 20 1
27 VIETNAM 6
28 ZAMBIA 9
TOTAL 176 220

Performance and operations review Standalone operating results Major highlights

Increase in revenue of your Company by 21% from the previous year.

b) Increase in EBIDTA by 38% from the previous year.

c) Increase by 25% of Profit after tax including exceptional items from the year ended 31st March 2021

The sales and operating income was INR 8,724.24 Lakhs in comparison to INR 7196.28 Lakhs in the previous year registering a growth of 21%. EBIDTA excluding Gratuity Provision was INR 1418.97 Lakhs for the year ending 31st March 2022 in comparison to INR 1030.49 Lakhs for the previous year registering a growth of 38%.

Key Ratio for the year ending 31st March 2022

Key Financial Ratios 31st March 2022
Profitability Ratio
Operating Profit Margin (%) Profit from Operations/ Sale of Products 9%
Net Profit Margin (%) Profit after Tax/ Revenue from operations 6%
Return on Net Worth Profit after Tax/ Shareholders equity 0.08
EBITDA % EBITDA % 16%
Efficiency Ratios
Current Ratio Current assets/ current liabilities 2.14
Inventory turnover ratio Sale of products/ Average inventories 2.20
Debtors turnover ratio Sale of products/ Average trade receivables 7.00
FA Turnover Ratio Sale of Products/ Average Fixed Assets 2.25

Internal control systems

The Company has 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 was undertaken by an Independent Auditor M/s Brahmayya & Co, Chartered Accountant firm, Chennai, for the financial year 2021-2022.

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 there on 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, 2022 was 320.

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 companys goals continues to be a major thrust area.