Biofil Chemicals & Pharmaceuticals Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENT

The Indian pharmaceuticals market has characteristics that make it unique. First, branded generics dominate, making up for 70 to 80 per cent of the retail market. Second, local players have enjoyed a dominant position driven by formulation development capabilities and early investments. Third, price levels are low, driven by intense competition. While India ranks tenth globally in terms of value, it is ranked third in volumes. These characteristics present their own opportunities and challenges.

India is the only country with largest number of US-FDA compliant Pharma plants (more than 262 including APIs) outside of USA. India has nearly 1400 WHO-GMP approved Pharma Plants, 253 European Directorate of Quality Medicines (EDQM) approved plants with modern state of the art Technology.

OPPORTUNITIES AND THREATS

The COVID-19 pandemic has brought businesses and daily human activities around the world to a standstill. This has impacted the manufacturing sector due to lockdowns across several countries around the world. As per a report published by the World Economic Forum (WEF), factory activity declined sharply across most of the Asian countries in March including Japan, South Korea and China.

Although China is considered as Manufacturing hub of world but because of Covid-19 Pandemic and Chinas attitude towards other countries which resulted in withdrawing the investment of many south Eastern Countries from China, Japan has announced US $ 2.2 Million monetary support to its manufacturers for shifting their manufacturing units out of China. As per Recent news many other countries have started shifting their manufacturing units out of China. Further at the time when world is suffering from deadly pandemic, our Country plans to convert this opportunity to strengthening its stand by promoting programmes like Atmanirbhar i.e " Self Reliant India " and Make For World by encouraging the domestic Industries in order to make Indian Manufacturers less dependent on China so that domestic markets become self dependent and export can be increased.

Indias strong position as a pharma supplier rests on its ability to provide high quality medicines backed by strong innovation capabilities and a structural cost advantage. The cost of manufacturing formulations in India remains 30-40 percent lower than other comparative manufacturing hubs such as China and Eastern Europe, notwithstanding low productivity levels. This is driven by lower labour costs vis-a-vis other geographies. Despite inflationary trends, Indias labour cost advantage will sustain in the medium to long term, especially if Indian companies can improve productivity through operational excellence and digital initiatives. The supply of local talent into the pharma industry is stronger than in countries such as China. Indian pharma companies are foraying into complex products (e.g., microspheres, liposomes, emulsions), building capabilities in R&D and the manufacturing of these products while still ensuring the required quality.

Your Company is major manufacturer and Traders of Ferrous Sulphate in its Crystal, Exsiccated & Granular form. The Granular form of Ferrous Sulphate are ready ingredients for the manufacture of Ferrous Sulphate & Folic Acid Tablets. By these form of Ferrous manufactures can save 4 to 5 stages during the manufacturing of tablets. These Tablets are used in Health care for treating anemia in therapeutic as well as for prophylactic use. Ferrous sulphate crystal are widely used in Effluent Treatment Plant.

Over and above, your Company has started manufacturing Diclofenac Sodium. Fenbendazole and Nifedepine etc.,

1) Diclofenac Sodium: It is a Non steroidal Anti inflammatory drug which reduces inflammation and pain. It is used to treat aches and pains as well as problems with joints, muscles and bones. These include rheumatoid Arthritis, osteoarthritis and gout.

2) Fenbendazole:It is used in the treatment of Parasite in the body like Round worms, Hook worms, Lung worms etc. It is also used in the treatment of pets.

3) Nifedepine: It is used in the treatment of High Blood Pressure and to control Anginas (Chest Pain ). Basically it is classified as Calcium channel Blockers.

Futher Looking to the increased demand during Covid-19 Pandemic , your Company has started manufacturing Face Mask and for that necessary statutory permissions have been taken from the Government.

However, the industry is also facing several challenges in supplying to export markets, which must be addressed going forward.

• The increasing pricing pressure in the regulated market is squeezing margins and profitability. Key drivers include customer consolidation, greater competition in commoditized, easy to manufacture products with increased AND approvals, and as lowdown in new launches.

• Another key challenges stems from compliance issues affecting there liability of supply. While many Indian companies have fare dwell in regulatory audits over the last year and seem to be emerging out of remediation, others continue to face challenges.

• Due to Covid 19 pandemic one of the major challenge which Indian Industries may face is easy availability of raw materials which used to be imported from China. There is and was huge dependency or raw material from China.

• Till India continue to rely on Imports for its key Ingredients, Intermediates and API from China, there is always fear of irregular supply.

SEGMENT WISE PERFORMANCE

Your Company is multi segment Company as it deals in Pharmaceuticals and Chemicals products. During the year under review the performances in terms of revenue of the segments were as follows:-

Pharma Unit

In the financial year 2018-19 revenue generated from Pharma Unit was Rs. 2110.13 Lacs and in the year 2019-20 the same unit generated revenue of Rs 2436.17 Lacs.

Chemicals Unit

In the financial year 2018-19 revenue generated from Chemical Division was Rs 202.73 Lacs Lacs and in the year2019- 20 the same unit generated revenue of Rs 532.85.

Plastic Division

Plastic division of the Company was not carrying on any business activities during the last nine quarters, since second quarter of July of the year 201 7, consequently there were minimum bearing expenses against zero income ad the division was running into loss, hence the Board decided to close the unit in their meeting held on 14th February 2020.

OUTLOOK

Medicine spending in India is projected to grow 9-12 per cent over the next five years, leading India to become one of the top 10 countries in terms of medicine spending. Further, Indian Government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers, which are on the rise.

RISKS AND CONCERN

The immense growth in pharmaceuticals in India had resulted in a much bigger problem of substandard or counterfeit drugs in India. But now by strengthening the Drug Control Department this problem will be overcome soon.

Other than this following other risk which Pharma sector is facing are:

• Unexpected unavailability of treatment sites for clinical trials.

• Delayed delivery of supplies for clinical trials.

• Knowing when a potential problem is going to become an actual problem.

INTERNAL CONTROL SYSTEM

The Company has a reasonable system of internal control comprising authority levels and powers, supervision, checks and balances, policies and procedures so as to ensure orderly and efficient conduct of business, safeguard the assets of the business, prevent and detect fraud, ensure the completeness and accuracy of accounting records, to ensure the timely preparation of financial information. Further, the system is reviewed and updated on an on-going basis on recommendations as and when made by the Statutory Auditors, Internal Auditors and Independent Audit Committee of the Board of Directors.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the financial year your company has achieved the turnover of Rs. 2986.17 Lacs in comparison to previous years turnover of Rs. 2322.98 lacs and net profit of the company is Rs. 123.35 lacs in comparison to previous net profit of Rs. 48.23 lacs.

HUMAN RESOURCES

At Biofil we believe that"company grows when its people grow" and hence we continuously strives to emphasize creation of a conducive work environment and development of a robust and consistent approach towards talent management & leadership development. As on 31st March, 2020, Company had 41 employees.

DETAILS OF SIGNIFICANT CHANGES IN THE KEY RATIOS

As per the amendment made under Schedule V to the Listing Regulations read with Regulation 34(3) of the Listing Regulations, details key financial ratios and any changes in return on net worth of the Company are given below:

Particulars 2019-20 2018-19 Change
Debtors turnover 1.42 1.85 23.08
Inventory turnover 0.96 1.13 14.94
Interest coverage ratio 12.97 4.70 -175.63
Current ratio 1.17 1.32 10.88
Debt-Equity ratio 1.69 0.65 -160.16
Operating profit margin (%) 0.05 0.03 -62.64
Net profit margin (%) or sector-specific equivalent ratio as applicable 0.04 0.02 -94.98

Reason for change of 25% or more in Financial Ratios:

Debt-Equity ratio: A negative debt to equity ratio occurs when a company has interest rates on its debts that are greater than the return on investment

Interest coverage ratio: It indicates that the owner must contribute additional funds to pay for the annual loan payments. Operating profit margin: Due to rapid increase in sale but the increasing rate of profit is much smaller than sale; therefore, operating profit is negative

Net Profit Margin: Due to rapid increase in sale but the increasing rate of profit is much smaller than sale; hence, net profit is negative.

DETAILS OF CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR

There was a change of -129.55% in Return on Net Worth due to huge increase in profits.

CAVEAT:

Some of the Statements in Management Discussion and Analysis describing companys objective may be "forward looking statement" within the meaning of applicable Securities Law and Regulations. Actual results may differ substantially or materially from those expressed or implied. Important factors that could influence companies operation include various global and domestic economic factors.