BDH Industries Ltd Management Discussions

Industry Structure and Developments - During the year 2023-24 the global economy witnessed on-going geopolitical conflicts, wide spread elevation of debt, extreme weather conditions and elections in many parts of the world. The IMF forecasts the global GDP growth of 3.2% for 2024 and 2025. Amidst a challenging global scenario, India hosted G20 Summit followed by successful moon mission and emerged as a significant economic and geopolitical power. With a GDP growth of 7.8% in 2023 as per IMF, India was the 5th largest economy and fastest growing major economy in the world.The pharmaceutical industry has and will continue to have a significant impact on the economy both in terms of contribution to GDP and employment. Continued broad based policy initiatives and scrutural reforms encompassing inclusive growth, a revival in consumption and fast paced adoption of new and emerging technologies to enhance productivity signal a prosperous future for Indian economy backed by the governments unwavering commitment to increase capital expenditure in near term. The Government of India is promoting digital infrastructure such as Unified Payments Interface (UPI) for digital payments, ONDC for digital commerce, Unified Logistics Interface Platform (ULIP) for logistics, Ayushman Bharat for electronic health records among others will spur innovations and growth. The flagship scheme Pradhan Mantri Bharatiya Janaushadi Pariyojana has 10,000 retail outlets - Janaushadhi Kendras for providing quality generic medicines at affordable prices for all reducing the out of pocket expenses in healthcare. Further the Government is also promoting setting up of labs for promoting research and innovation in pharmaceuticals catalyzing growth, employment and development.

Outlook - The volume use of medicines globally plateaued in 2023 but is expected to grow at an average 2.3% rate through 2028 as per IQVIA report on ‘Global use of medicines 2024. It will be driven by China, India and other Asian markets all growing faster than 3%. Overall spending on medicines is exceeding pre-pandemic growth rates and expected to continue the trend through 2028. Generally wealthier countries have higher level of spending on original branded products and low income countries have greater reliance on generic drugs. Medicine use for specific therapy areas has been growing with notably high growth in immunology, endocrinology, antibacterials and oncology. India is worlds third largest pharmaceutical manufacturer by volume and the largest provider of generic medicines, occupying a 20% share of global supply by volume. The Indian pharmaceutical industry experienced a steady growth over the last few years with focus on manufacturing generic drugs solidifying its position as a global pharmaceutical hub.The Indian pharma industry has recorded a 10% growth approximately in 2023. The rising costs and regulatory pressure in the developed markets like Europe and US are forcing many global pharmaceutical companies to reduce their internal capacities in manufacturing and research & development (R&D) and turn to contract manufacturing, research services and clinicals trial to developing countries. These strategies help the global pharmaceutical companies reduce costs, increase development capacity and focus on their core profit making activities such as drug discoveries and marketing rather than on manufacturing. In this scenario, Indias attractiveness remains robust given the size and scale it has to offer to the global pharmaceutical companies, abundant skilled talent pool and prowess in technology and innovation resulting in the potential savings of 30%-40% compared to western markets. This will create huge opportunities for Indian pharmaceutical companies. Various government schemes such as production linked incentive (PLI) scheme and the strengthening of pharmaceutical industry (SPI) scheme have propelled the growth of the Indian pharmaceutical sector. The growth momentum of the Indian pharmaceutical industry is expected to continue in coming years on the back of favourable government policies, increasing foreign investment, rising healthcare expenditure, rapid use of technology and innovation and emphasis of domestic manufacturing of quality pharmaceutical products. Improving affordability driven by rising per capita income, growth in health insurance coverage and infrastructure, increasing chronic diseases, growing penetration of e-pharmacy and supportive ecosystem are the growth drivers for the Indian pharmaceutical industry. The Companys long term outlook continues to be promising subject to overall growth in the Indian and global pharmaceutical industry and disruptions emerging due to potential escalation of Middle East conflict which would lead to increase in oil prices, shipping costs and inflation.

Opportunities, Risks and Concerns - Indianpharmaceutical companies are forming strategic alliances with global counterparts enabling knowledge exchange, resource sharing, access to new geographies and co-marketing deals for new drugs that foster innovation, broaden existing portfolios and benefit both parties. Adoption of emerging digital technologies like robotics, artificial intelligence (AI), telemedicine and machine learning (ML), 3D printing etc shall amplify the demand for innovative medicines, revolutionize distribution channels and propel pharmaceutical market in India. China plus one strategy is expected to benefit Indian companies as global companies are exploring alternatives to Chinese companies driven by concerns over geopolitical tensions and supply chain vulnerabilities.Here Indian pharmaceutical companies are an attractive alternative having potential to emerge as a reliable base for manufacture of raw materials and pharmaceutical production. The Indian pharmaceutical industry operates under highly regulated environment and influenced by the healthcare reforms, pricing regime, rising competition and challenging regulatory landscape with increased scrutiny. Any unfavourable alterations in government policies related to pricing or trade margins may impact the Companys performance. Volatility in prices of raw materials due to inflation, changes in government policies, supply chain disruptions, fluctuations in foreign exchange rates, demand and supply conditions etc may impact manufacturing cost and profit margin. As a remediation measure your company regularly assesses its product portfolio to make it more diversified and focus on operational efficiencies to control costs. However, poor public healthcare funding and infrastructure, low per capita consumption of medicines in emerging economies including India, currency fluctuations, geo-political conflicts, regulatory issues, government mandated price control, inflation and resultant all round increase in input costs are a few causes of concern.During the year, the two wind turbines of the Company at Jaisalmer in Rajasthan with capacity of 1.6MW commenced commercial operations and the electricity generated by them is sold on Indian Energy Exchange (IEX). The Company shall report the performance of its two segments - Pharmaceuticals and Renewable Energy from FY 2023-24 onwards.

Financial Performance and Operations Review - During the FY 2023-24 the Company earned total income of Rs. 8741.17 lakhs as against Rs. 7529.81 Lakhs in 2022-23, registering a growth of 16.09% over previous year. Export Sales in the financial year 2023-24 are Rs. 4837.61 lakhs as compared to Rs. 4146.91 lakhs in FY 2022-23. In FY 2023-24 the Company achieved Domestic Sales of Rs. 3745.49 lakhs as compared to Rs. 3298.80 lakhs in FY 2022-23. The operations have resulted in a net profit of Rs. 986.78 lakhs during the FY 2023-24 as against Rs. 820.48 lakhs registering a growth of 20.26% over previous FY 2022-23.

Key Financial Ratios-

As per Schedule V read with Regulation 34(3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, details of significant changes i.e. change of 25% or more as compared to the immediately previous financial year in Key Financial Ratios are given below :-

Internal Control Systems and its adequacy - The Company has a reliable system of internal controls that is the prerequisite of good governance. The control framework is designed to continuously assess the adequacy, effectiveness and efficiency of internal control system commensurate with the size and nature of business of the Company. This assures compliance with applicable laws, regulations, accuracy of records, operational efficiency, protection of resources and assests and overall risk minimisation. There are well-defined SOPs for every function, internal policies, guidelines, authorizations and approval procedures to ensure the appropriate checks and balances and regulatory compliance at all levels alongwith system of management reporting and periodic review of the business to ensure timely decision-making. The Company reviews the internal control systems to ensure they are updated at regular intervals.

Human Resources - The employees of the Company are not only the stakeholders in its growth but also key drivers of its performance. The Company provides the environment that encourages the employees to perform to their fullest potential. The Company imparts training to its employees which develops their skills to perform their job effectively. The Company employs suitably qualified, capable and experienced personnel, as per requirement. Further the Company also deputes its employees for attending workshops and seminars to improve their operational competency, shoulder more responsibilities and take part in the growth of the Company. The Company has maintained cordial and harmonious relations with all employees. The Company has Reward and Recognition Programme. The Company has 117 employees as on 31st March, 2024.

Cautionary Statement - In the Management Discussion and Analysis section there may be forward looking statements within the meaning of applicable laws and regulations. The forward looking statements are based on certain assumptions and expectatations of future events. Actual results may differ materially from those expressed in this section due to external factors beyond the control of the Company. The Company assumes no responsibility to any forward looking statements on the basis of any subsequent developments.