BDH Industries Ltd Management Discussions.

Industry Structure and Developments - As a result of COVID 19 pandemic, the global economy is projected by IMF to contract by 3% in 2020, much worse than during 2008-09 financial crisis. In a baseline scenario which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound -the global economy is projected to grow by 5.8% in 2021 as economic activity normalises, helped by policy support. India is expected to register 1.9% growth in 2020 and 7.4% in 2021.Effective policies are essential to forestall the possibility of worse outcomes. Necessary measures to reduce contagion and protect lives are important investments for long term human and economic health. The Pharmaceutical industry is one of the worlds fastest growing industries and among the biggest contributors to the world economy. Its role has become far more critical amidst the fight against COVID 19 pandemic.In order to contain the spread of pandemic in the country, the Governmentof India continued its investment in Ayushman Bharat Scheme for free testing and treatment of COVID 19 patients at hospitals empanelled under Pradhan Mantri Jan ArogyaYojana for more than 50 crore citizens. The Government continues to revise the National List of Essential Medicines (NLEM) for better management of medicines, better quality of medical care and cost effective use of healthcare resources. Additionally new regulations like the Personal Data Protection Bill 2019 and E-Pharmacy Rules are expected to be introduced inthe current financial year.

Outlook - Indian Pharmaceutical Industry is 3rd largest by volume and 14th largest by value in the world. The year ahead brings challenges with pandemic of COVID 19 looming globally. It has disrupted supply chains and international trade with more than 100 countries closing borders and restricting movement of people due to lockdown. The pharmaceutical business is directly confronted to work on regulatory challenges, reduce dependency on one region or country for input raw materials, de-risk the product by developing capabilities to manufacture the product at different locations, strengthen response on costs and adapt to the operational challenges to manage the volatility in the external environment amidst of COVID 19 pandemic. Pharmaceutical companies around the globe are working with governments to address the COVID 19 outbreak. The Indian Pharmaceutical industry has exhibited a strong growth trajectory over the years and has registered a prominent and rapidly growing presence in global pharmaceutical arena. This is attributed to the world class capabilities in the formulation development and vision of the industry to establish Indias footprint in international markets. It has contributed significantly to global healthcare by ensuring quality, accessible and affordable medicines around the globe. India continues to be the largest provider of vaccines and generic drugs in the global market. Increasing per capita income, growing penetration of health insurance, government thrust on improving penetration of modern medicines into rural areas and accelerating access of pharmaceutical products to the poor and low-income sections of population, increased incidence of chronic ailments due to changing lifestyle, longer life expectancy and improvement in healthcare awareness are the growth enablers for the Indian pharmaceutical industry. The country also has a huge pool of scientists and engineers having capability to steer pharmaceutical industry forward to much greater degree. The cost efficiency also continues to create opportunities for Indian pharmaceutical companies in emerging global economies. With the varied range of medicines available for exports, largest number of approved manufacturing facilities, improvement in medical infrastructure and jump inpenetration of health insurance in the country, the long term outlook for Indian pharmaceutical industry remains largely positive subject to prevailing uncertainty in terms of spread of COVID 19 pandemic in India.

Opportunities, Risks and Concerns - The COVID 19 pandemic is re-defining the conventional way of business by exposing the sectoral vulnerabilities and forcing the policy makers to take corrective measures that will benefit the industry in longterm. The Governments recent decision on promotion of domestic manufacturing of critical APIs and Key Starting Materials (KSM) bodes well for India and thereby reduce its dependency on other countries. The government is also promoting wide use and distribution of generic drugs through various initiatives. Indian pharmaceutical companies are focusing on global generic and API business, R&D activities, contract research and manufacturing alliances. Increasing use of pharmaceutical generics in developed markets to reduce healthcare cost will provide attractive growth opportunities to Indian manufacturers. The emergence of new viruses and drug resistant infections, specialty medicines, biological agents, immune therapies etc. has spurred research and development activities recently providing the industry with more products in their drug pipeline with revenue and growth streams. The race is on to find a vaccine to stop the spread of COVID 19 virus with countries around the world researching different vaccine technologies that might halt the pandemic. Indian pharmaceutical market is considered to be highly fragmented and consolidation has become an important feature of this industry. The Indian pharmaceutical industry is strengthened by low cost of manufacturing and high process knowledge skills to grab larger share of global pharmaceutical market. India is fast emerging as a preferred pharmaceuticals manufacturing location.Increasing use of pharmaceutical generics in developed markets to reduce healthcare cost will also provide attractive growth opportunities to Indian generic formulations manufacturers. The year ahead is challenging due to the prevalent COVID 19 situation with high level of uncertainty on the duration and spread of the outbreak, related Government advisories and overall impact on the economy. During the year, there was no change in the nature of Companys business.

Financial Performance and Operations Review - During the financial year under report the Company registered a total income of Rs 6027.29 lakhs as against Rs 5257.67 Lakhs registering a growth by 15% over the previous year. Export Sales in the financial year 2019-20 are Rs 3167.07 lakhs as compared to Rs 2882.17 lakhs in the financial year 2018-19. The Company achieved Domestic Sales of Rs 2860.22 lakhs as compared to Rs 2375.50 lakhs in financial year 2018-19. The operations have resulted in a net profit of Rs 594.24 lakhs during the year under report as against Rs 482.98 lakhs registering a growth of 23% over the previous financial year.

Key Financial Ratios -

31st March 2020 31st March 2019
Debtors Coverage Ratio 5.40 4.10
Inventory Turnover Ratio 11.87 6.70
Interest Coverage Ratio 12.79 13.64
Current Ratio 1.69 1.43
Debt Equity Ratio 0.24 0.38
Operating Profit Margin (%) 13.47% 11.95%
Net Profit Margin (%) 9.86% 9.19%
Return on Net worth (%) 16.37% 14.73%

The increase in sales and improvement in operational performance has resulted in increased profitability, operating profit margin, net profit margin and return on networth.

Internal Control Systems and its adequacy - The Company has adequate internal control systems including suitable monitoring procedures commensurate with its size and nature of business. The internal control systems provide for well-defined and documented policies, guidelines, authorizations and approval procedures and ensure optimum use and protection of resources and compliance with policies and procedures. The Company has a well defined system of management reporting and periodic review of business to ensure timely decision-making. The Company endeavors to review and update these as an ongoing practice.

Human Resources - The human resource plays a vital role in the growth and success of an organization. The Company recruits, develops and employs suitably qualified, capable and experienced personnel, as per requirement. The Company has maintained cordial and harmonious relations with all employees. The Company deputes employees for training, development workshops and seminars to improve the operational performance of individuals. The Company has Reward and Recognition Programme. The Company has 129 permanent employees as on 31st March, 2020.

Cautionary Statement - Certain Statements in the Management Discussion and Analysis section may be forward looking within the meaning of applicable laws and regulations. Many factors may affect the actual results including competition, price realization, currency fluctuations, regulatory issues, evolving COVID 19 pandemic situations, changes in government policies and regulations, tax regimes, economic development within India and countries in which the Company conducts business and other incidental factors.