Bal Pharma Ltd Management Discussions.

Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value. The domestic pharmaceutical industry includes a network of 3,000 drug companies and — 10,500 manufacturing units.

Indian drugs are exported to more than 200 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. It is expected to expand even further in the coming years. The Indian pharmaceutical exports, including bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgical, reached US$ 24.44 billion in FY2I.

Indian pharmaceutical sector supplies over 50% of the global demand for various vaccines, 40% of the generic demand for US and 25% of all medicines for UK. India contributes the second-largest share of pharmaceutical and biotech workforce in the world. According to the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade.

Indias domestic pharmaceutical market is estimated at US$ 42 billion in 2021 and likely to reach US$ 65 billion by 2024 and further expand to reach —US$ 120-130 billion by 2030.

Indias medical devices market stood at US$ 10.36 billion in FY20. The market is expected to increase at a CAGR of 37% from 2020 to 2025 to reach US$ 50 billion.

‘Pharma Vision 2020 by the Governments Department of Pharmaceuticals aims to make India a major hub for end-to-end drug discovery. The Indian drugs and pharmaceuticals sector has received cumulative FDI inflows worth US$ 17.75 billion between April 2000 and December 2020.

Covid impact, challenges and opportunities:

The corona virus pandemic and its resultant lockdown has badly affected all major sectors of the economy, but it has come as a boon in disguise to the Indian pharmaceutical sector. Though some part of pharmaceutical business was affected such as supply chain and import of active pharmaceutical ingredients from China, Covid-19 has provided some opportunities in the pharmaceutical sector, especially in India.

In generic market, India is facing high competition from China for the supply of APIs at lower cost. India imports 70 per cent of the API needs from China. This created a lot of hardship to some of the domestic pharmaceutical firms manufacturing certain key APIs. Indias health security was under threat due to heavy dependence on China coupled with shortage in supply of key APIs.

Some of the key APIs were crucial to mitigate the burden of accelerating disease like tuberculosis, diabetics and cardiovascular diseases in India. The current dependence of Indian pharmaceutical companies on Chinese APIs created a serious concern for national health security, prompting the Government of India to set up a task force for reviewing the domestic API sector.

In view of the Covid-19 pandemic situation, the Government of India has taken important steps in proposing incentive package of Rs. 13.76 billion for the promotion of domestic manufacturing of critical key starting materials, drug intermediates,APIs and medical devices.

The MSME sector needs high focus in the above endeavour for twining public health and economic development.

To achieve self-reliance and minimise import dependency in the countrys essential bulk drugs, the Department of Pharmaceuticals initiated a Production Linked Incentive (PLI) scheme to promote domestic manufacturing of APIs and Formulations by setting up greenfield plants with minimum domestic value addition in four separate ‘Target Segments with a cumulative outlay of Rs. 6,940 crore (US$ 951.27 million) from FY2I to FY30.

Under Union Budget 2021-22 has allocated to Ministry of Health and Family Welfare Rs. 73,932 crore (US$ 10.35 billion) and the Department of Health Research has been allocated Rs. 2,663 crore (US$ 365.68 billion). The government also allocated Rs. 37,130 crore (US$ 5.10 billion) to the National Health Mission. PM Aatmanirbhar Swasth Bharat Yojana was allocated Rs. 64,180 crore (US$ 8.80 billion) to be spent over next six years.The Ministry ofAYUSH was allocated Rs. 2,970 crore (US$ 407.84 million), up from Rs. 2,122 crore (US$ 291.39 million).

India plans to set up a nearly Rs. I lakh crore (US$ 1.3 billion) fund to provide boost to Companies to manufacture pharmaceutical ingredients domestically by 2023 thereby reducing its dependency on imports.

Business Operations:

The Company continues its business operations in single segment i.e Pharmaceuticals and there is no change in the nature of business during the year under review.

Revenue and net profits:

The Company has recorded revenue of Rs. 252 Crores for the financial year ended 31.03.2021 which is 44.58% growth in revenue when compared to the previous years revenue. EBIDTA for the F.Y stood at Rs. 29.01 Cr driven by higher margins in domestic and international markets. Net profit before tax stood at Rs. 10.50 Crores for the current financial year as against loss of Rs. -9 Cr during F.Y 2019.20.

The Company has recorded a strong revenue contribution from its export business which has registered a growth of 59% YoY. API and Formulations segments are the growth drivers for Export revenue of the Company in 53:47 ratio.

Domestic Bulk Drug business of the Company has reported a revenue of Rs. 56.08 Cr. Anti Diabetic and Cardiac drugs continue to dominate the revenue earnings for the Company. APIs also has its share in export business with Rs. 73.59 Cr in revenue contribution.

Formulations has shown its dominance in export business with over Rs. 86.62 Cr in revenue generation. Domestic sales of the formulations has recorded a revenue of Rs. 29.43 Cr. which is slightly lower then that of the previous years revenue of Rs. 39 Cr. The management has taken a conscious decision to restrict domestic institutional sales of formulations due to its longer working capital cycle and recoverability issues in domestic market.

Earnings per share for the F.Y 2020.21 stood at Rs. 6.41 as against loss of Rs. -6.28 recorded during the previous financial year.

Key Financial Indicators:

Debtors Turnover:

Debtors turnover during F.Y 2020.21 is 121 days. The Company is taking steps to improve the debtors turnover during the current fiscal.

Inventory Turnover:

3.61 is the inventory turnover for the year 2020.21 as against 2.49 during F.Y 2019.20. Widening of its product mix and improving the supply chain has helped the Company to improve the inventory turnover during the financial year.

Interest Coverage Ratio:

21.86 is the interest coverage ratio of the Company for the F.Y 2020.21 as against 2.81 during the previous year. Effective management of the working capital cycles and reduction in long term debt will further improve the Interest coverage ratio.

Current Ratio:

Current ratio for the year ended 31.03.2021 stood at 1.32 as against 1.24 for the previous financial year.

Debt Equity Ratio:

2.30 is the debt equity ratio of the Company for F.Y ended 31.03.2021 as against 3.56 during F.Y 2019.20.

Operating profit margin:

7.53% is the operating profit margin of the Company for the financial year ended 31.03.2021 which indicates the positive percentage of profits that the Company makes out of the total revenue from operations.

Net profit margin:

3.69% is the net profit margin of the Company for the F.Y 2020.21 which indicates the percentage of profits against its total revenue.

Return on net worth:

12% is the return on net worth of the Company for F.Y 2020.21 which is the indication of effective usage of Companys assets for profit maximisation.