MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Companys turnover for financial year ended 2022 stood at Rs. 7696.72 lacs comparison to previous year turnover of Rs. 7724.69 lacs. The previous year turnover includes sales from Vadodara plant. We look at consolidated turnover numbers there is growth of 17.90% YOY.
|(Rs. in lakhs)|
|Profit before Depreciation, Interest & Tax (PBDIT)||282.20||190.52||(1345)||125.64|
|Financial Expenses (Interest)||66.97||324.76||309.69||309.84|
|Profit before Depreciation and Tax (PBDT)||215.23||(134.24)||(1654.69)||(184.2)|
|Depreciation and Amortization||148.63||709.29||735.07||714.33|
|Profit before Tax (PBT)||66.60||(843.53)||(2389.77)||(898.53)|
|Extraordinary items Gain / (Loss)||-||-||-||-|
|Net OCI Impact Gain / (Loss)||12.66||10.79||-||-|
|Share of Profit / (Loss) of Associate||-||-||-||(0.80)|
|Income Tax net of MAT credit Income / (Expense)||-||(715.22)||458.51||(1038.22)|
|Profit after Tax||79.26||(1547.96)||(1931.26)||(1937.55)|
|Earnings per Share (in Rs.)||0.27||(6.31)||(7.82)||(7.10)|
On Standalone basis, the turnover of the company for the year ended March 31, 2022 stood at Rs. 7696.72 lacs in comparison to previous year turnover of Rs. 7724.69 lacs which is slightly lower than previous year number. The previous year turnover includes sales from Vadodara plant. So if we look at consolidated turnover numbers there is growth of 17.90% YOY.
Cost of material:
There has been marginal increase in the cost of materials as a percentage to turnover, from 62% in FY 2020-2021 to 64% this year. This increase is due to higher input cost.
There is a decrease in the employment cost by Rs. 156.64 lakhs which is 11.00% decrease as compared to the previous year ended March 31, 2021. The decrease is due to separation of Vadodara Plant.
There is substantial decrease in the finance cost of Rs. 257.79 lakhs in FY2021-22 compare to previous year. The decrease is due to separation of Vadodara Plant. At consolidated level there is no major change, for FY 2021-22 it is 309.69 against 309.84 for FY 2020-21.
Due to separation of Vadodara Plant there is substantially decrease in Depreciation by 560.66 lakhs while at consolidated level it is almost in line. There is increase in depreciation at consolidated level due to addition of Fixed Assets.
There is no Tax liability for the financial year 2021-22. During the previous year company has opted for vivad se vishwas scheme (VSVS) for the demand amount outstanding of AY 2012-13. The liability amounting to Rs.900.67 lakhs has arised against which company had already recognized Rs.185.45 lakhs in the respective year, remaining amount of Rs. 715.23 lakhs has been recognized as tax for earlier years during FY 2020-21.
Industry Structure and Developments
India is one of the leading manufacturing hubs for generics and the biggest exporter, with a competitive advantage in cost and availability of skilled manpower. Indian pharmaceutical companies are continuously investing in research and development activities to expand their presence. They have also been partnering with various multi-national companies to improve their reach and product portfolio. Pharma Industry majorly depends on the regulatory approvals. We are in process of getting the approvals from many foreign countries and we are expecting to secure more international approvals in coming year. The Investment by JV partner Steriscience Specialties Private Limited ‘SSPL used to install Ertapenem line and erection of API facility underway. Recently we have received our first ANDA approval by USFDA of Meropenem injection for Vadodara Plant. We have also received approval for meropenem in all 30 EU countries including UK. We expect to have multifold increase in sales in Vadodara facility.
Our sales are primarily from Domestic market on contractual basis. Currently, we are focusing on International Market as it is growing faster than Domestic market. We have filed product registration to various countries to boost the sales and margins. We have received various approvals in RoW markets and exports have been started.
Expansion of Critical Care Segment
In domestic market we are strengthening our own critical care marketing team. We are now catering in five states with team size of 80+ and planning to expand our footprints with addition of the new territories in coming year. In last year we have launched various products and coming year plans to enter in new range of product line. This will help us to improve our presence in the market and product margins.
The Company looks for opportunities in order to expand its product line through strategic arrangement. The Company in past entered into a joint venture agreement with a strategic partner who have understanding and international reach and strong track record and presence in many regulated countries. This was a significant step to aggregate mutual synergies and speedup the Companys footprints in international markets like Europe and America, together with a more accomplished and experienced partner. The strategic arrangement will transform the companys credibility in those territories and open up more business opportunities. It shall also enhance the manufacturing capabilities of the company with more innovative products, as a result of fresh investments and richer experience coming in from strategic partner.
Outlook for Domestic Market
As per IQVIA report, the India pharmaceutical market is expected to be one of the fastest growing pharmaceutical markets in the world with underlying growth drivers like rising incidences of lifestyle diseases, higher disposable income, improved access to healthcare facilities and increasing penetration of medical insurance. The Government is also increasing its investments towards the healthcare sector with initiatives like Ayushman Bharat-Pradhan Mantri Jan Aarogya Yojana and Jan Aushadi Kendras, which is improving the affordability and accessibility of quality medical treatment amongst the economically weaker sections of the society. While these drivers will ensure good visibility of growth for the Indian pharmaceutical industry over the medium to long-term horizon, there could be some near-term impact on the Indian pharmaceutical industry due to COVID-19. Due to extended lockdowns in a large part of the country and because of the fear of getting infected, lots of elective surgeries are getting deferred. Many of the hospitals have shut their OPDs and doctors have stopped going to their clinics.
This has impacted the generation of new prescriptions which is an important growth driver for the pharma industry. With the gradual relaxation in lockdown rules, activity levels are expected to pick up in hospitals and clinics, which should help the pharma industry to gather momentum. The Company remains positive over the medium to long-term and expects to deliver healthy growth in the Indian Pharmaceutical Market.
Outlook for International Markets
The Company thrives to grow at a similar pace in the international markets. The Company continued to focus on increasing its operational efficiencies and optimising costs to mitigate the risks arising out of tightening rules by the local governments, evolving regulatory environment and volatility in the currency exchange rates. To augment the growth in these markets, the Company is focusing on with more international approvals in coming year to have multifold increase in sales.
Discussion of Financial performance with respect to Operational Performance
The company operated the Baddi plant at almost full capacity, though the production in units was more but realization per unit went down due to stiff competition resulting in lower sales in value terms. Sales at Vadodara facility have started picking up but at low pace due to delays in approvals from regulatory agencies of different countries. With more international approvals in coming year and recent USFDA approval along with set up new project of Ertapenem and API facility for Carbapenems, we expect to have multifold increase in sales in Vadodara facility.
Internal Control System and their adequacy
Brooks believes that internal control is a prerequisite for governance and that business plans should be exercised within a framework of checks and balances. The Company has a well-established internal control framework, which is designed to continuously assess the adequacy, effectiveness and efficiency of financial and operational controls. The management is committed to ensuring an effective internal control environment, commensurate with the size and complexity of the business, which provides an assurance on compliance with internal policies, applicable laws, regulations and protection of resources and assets.
Human Resources Policy
HR supports and upholds Brooks goals by nurturing a Positive and Engaging work environment while identifying and responding to the changing needs of the Organization and our Society.
Brooks Human Resources department will serve as a Guardian for Excellence and Leadership through:
• Improving Organizational Effectiveness
• Innovative HR solutions
• Attract, Retain and Develop the talent
• Extraordinary Quality of services
• Building collaborative partnerships (HR as Business Partner)
• Develop a Robust Employee engagement plan for the staff & wage workforce through multiple engagement initiatives across the year.
Core values of HR Department
• Focused Approach
We advance Brooks mission by thinking and acting in the best interests of the organization and the workforce; in particular, when developing policies, processes, programs and delivering services.
HR at Brooks would be dedicated to Quality, Excellence and Continuous improvement. We work to ensure the Brooks remains competitive in its Human Resources policies and practices by actively seeking and developing best practices, methods and approaches.
• Being Professional
We adhere to high professional standards of quality, competency and conduct. We act with honesty and integrity. We anticipate and are proactive, collegial and collaborative in our work. We remain current in professional practice.
We are accessible and answer to stakeholders for results in accordance with policies, standards, commitments and principles. We document, measure and report performance and evaluate program effectiveness.
We balance requests to share information clearly and openly while respecting the security of confidential and personal information entrusted to the department.
We have 335 peoples employed on the rolls of the Company.
For its operations the Directors believe that, the company has laid down internal financial controls to be followed by the company; and that such internal financial controls are adequate and were operating effectively for Risk Management.
Risk & Concerns:
Risk is a potential event or non-event, the occurrence or non-occurrence of which can adversely affect the objectives of the Company. Impact of risks could either be monetary that is impact on business profits due to increase in costs, decreasing revenue amongst others or non-monetary which is delay in securing regulatory approvals, reputational damage etc. The Company is susceptible to risks arising out of our business strategy, succession planning and decision on innovation or product portfolio. If there is any significant unfavorable shift in industry trend or pattern of demand, our returns on investments might get affected. We have risks associated with clients and prospective clients dispositions.
Any delays due to changes in regulatory requirement, clearances or executional failures could materially affect the timing and implementation of our strategy. Further, due to higher profitability in the injectables space and price pressure in the orals because of the competition, we have seen more Companies are eying injectables segment as an area to grow, thus increasing some competition from India in various markets like USA. Emerging countries currencies have become significantly devalued making our products expensive or reduced margins in the emerging countries market.
Regulators across the globe strictly monitor the pharmaceuticals manufacturing facilities. Governing laws across the globe are becoming increasingly stringent over time, with severe penalties or actions in the event of non-compliance or violations to regulatory standards. In the scenario where we or any of our suppliers fail to comply with such regulations, there could be a regulator-enforced shutdown of concerned production facilities, withdrawal of drug approvals previously granted, failure or delay in obtaining approvals for new products, prohibition on the sale or import of noncomplying products etc. Such impact would significantly affect the delivery of our objectives. Given the evolving nature and regulatory complexities relating to Injectables production, there is a continuous challenge in meeting the regulatory requirements. This might also lead to additional requirements from the regulators before granting commercialization approval. The additional requirements would not only increase our financial commitments but also shift the launch timelines, there by impacting Company strategy.
In addition to the above, other key risks relating to our current operations include human capital risk such as loss of key personnel, timely replenishment of critical vacant roles, reliance on third party sole suppliers or service providers including reliance on regional suppliers, disruption of operations from natural disasters, risk arising out of strategic projects, foreign exchange fluctuations, changing landscape of statutory regime etc.
At BROOKS, Risk Management is a key strategic focus for the Members of Board. All key functions of the Company are independently responsible to monitor risks associated with in their respective areas of operations such as production, supply chain, marketing, finance, accounting, treasury, legal, human resource and others areas like health, safety and environment.
Brooks Lab Operations:
The upgradation of injectables was carried out at the Baddi facility to focus on high profit international markets. All facilities and production lines are upgraded regularly to meet current cGMP, Safety, Health and Environmental Standards. Various initiatives are taken towards energy and water conservation. The Companys journey towards achieving operational excellence across functions was driven through its efforts through automation of operations & upgrading the facility to qualify for higher regulatory approvals. The Vadodara facility which has been transferred to Brooks Steriscience Limited on slump exchange basis in which Brooks Laboratories Limited will held 49% stake is also operational in full capacity. The other two projects of Ertapenem and API facility for Carbapenems are also to be set up in the Vadodara factory, which will strengthen the position of the Company globally.
Environment, Health & Safety (EHS)
Brooks is committed to comply to high standards of environment, health and safety performance and is an integral to its working. Brooks ensures that each employee strives to achieve EHS excellence.
Brooks assures a culture of compliance and follows systematic interventions to consistently meet and exceed quality standards. Brooks is committed to enhance its quality management systems to meet and exceed the current expectations of regulatory authorities such as CDSCO, US FDA, EU GMp, tGa, MCC, WHO, etc. Its state-of-the-art manufacturing facilities at Vadodara is cGMP & EU GMP compliant and Baddi is cGMP compliant in conformity with national and international standards. Brooks looks forward for implementation of robust and effective quality management systems for continuously monitoring through quality metrics and internal audits.
THREATS, RISKS AND CONCERNS
For Brooks Operations:
Drug Price Control:
The Health Ministry keeps on revising the list of Drugs under price control. It is likely that the Government may bring more drugs and formulations under price control or change the mechanism of calculating the ceiling price of the drugs, which are under the ambit of the revised policy, which in turn will affect the net margins of the Company.
The Government of India is continuously bringing in policies to shift the market towards generic products. The implementation of this process requires action by all stakeholders. This may have impact on future business strategies of the Company.
Manufacturing & Supplying Risk:
Although a major portion of the Companys finished formulations and injectables are being manufactured at in-house facilities, the Company also depends on its suppliers for sourcing of its raw materials. Any significant disruption at in-house facilities or any of its suppliers locations due to economic, political & social factors or any other event may impair the Companys ability to meet the markets demand on a timely basis. In addition, the Companys manufacturing capabilities could be impacted by quality deficiencies in the products, which its suppliers provide, leading to impact on its financial performance.
New capital investments:
The Company has earmarked all capital investments in FY 2020-21 towards marketing of our products in domestic & international market. Company has started with own marketing team in Maharashtra, Gujarat, Rajasthan, Uttar Pradesh and Orissa and to be followed in other states in phased manner.
Company is in process of registration of its products in various countries by filing Dossiers in regulated markets and semi regulated markets to capture sales in these markets, these are procedural steps which have to be followed and these steps take its own time, but processes are being followed actively.
Currency fluctuation risks:
Foreign currency risks arise out of overseas operations and financing activities. Exchange rate volatility significantly impacts earnings and net equity because of invoicing in foreign currencies, expenditure in foreign currencies, foreign currency borrowings and translation of financial statements of overseas subsidiaries into Indian rupees. The Company has a defined foreign exchange risk management framework to manage these risks excluding translation risks.
As the Company has potential tax exposure resulting from application of varying laws and interpretations, which include intercompany transactions with related parties in relation to various aspects of business. Although the Company believes its cross border transactions between affiliates are based on internationally accepted practices, tax authorities in various jurisdictions may have different views or interpretations and subsequently challenge the amount of profits taxed in their jurisdiction resulting into increase in tax liability including interest and penalties causing the tax expenses to increase.
As at March 31,2022
|Ratio||Basis of Ratio||Numerator Current Period||Denominator Current Period||Ratio Current Period||Numerator Previous Period||Denominator Previous Period||Ratio Previous Period||Variance %||Reason for Major Variance|
|Current Ratio||Current Assets/ Current Liabiliites||3,703.52||3,546.46||1.04||2,534.44||2,568.87||0.99||5.85|
|Debt-Equity Ratio||Total Debt/ Shareholders Equity||492.29||6,500.30||0.08||839.91||6,421.04||0.13||(42.10)||Reduction in CC limit & repayment of term loan during current financial year.|
|Debt Service Coverage Ratio||Earnings available for debt serivce1/ Debt Service2||282.19||216.38||1.30||(519.10)||467.33||(1.11)||(217.41)||Improvement in ratio due to slump exchnage of vadodara plant.|
|Return on Equity Ratio||Net profit after taxes / Average Shareholders Equity||66.60||6,460.67||0.01||(1,558.75)||8,131.32||(0.19)||(105.38)||Improvement in ratio due to slump sale of vadodara plant.|
|Basis of Ratio||Numerator Current Period||Denominator Current Period||Ratio Current Period||Numerator Previous Period||Denominator Previous Period||Ratio Previous Period||Variance %||Reason for Major Variance|
|Inventory turnover Ratio||Cost of Goods Sold3/ Average Inventories||4,927.93||1,448.31||3.40||4,777.30||1,307.68||3.65||(6.86)|
|Trade Receivables turnover Ratio||Net Credit Sales / Average Trade Receivables||7,696.72||1,231.28||6.25||7,727.45||1,257.64||6.14||1.73|
|Trade Payables turnover Ratio||Net Credit Purchases / Average Trade Payables||5,354.16||1,956.65||2.74||5,695.16||1,972.61||2.89||(5.22)|
|Net capital turnover Ratio||Net Sales / Working Capital4||7,696.72||157.06||49.01||7,727.45||(34.43)||(224.46)||(121.83)||Slump sale of vadodara plant working capital, reduction in CC limit & better performance in current financial year|
|Net profit Ratio||Net Profit/Net Sales||66.60||7,696.72||0.01||(1,558.75)||7,727.45||(0.20)||(104.29)||Improvement in ratio due to sepration of vadodara plant.|
|Return on Capital employed||Earning before Interest and taxes/ Capital Employed5||126.13||6,464.22||0.02||(1,249.34)||6,367.65||(0.20)||(109.94)||Improvement in ratio due to sepration of vadodara plant.|
|Return on investment||Income from investment/Cost of Investment||0.30||4,684.35||0.00||0.30||4,680.54||0.00||(0.08)|
1 Earnings available for debt service = Net profit after tax + finance costs + depreciation & amortisation expense + loss on sale of fixed assets
2 Debt Service = Interest & lease payments + principal payments
3 Cost of Goods Sold = Cost of materials consumed + Purchases of stock-in-trade + Changes In inventories of finished goods (incl. stock-in-trade) and work-in-progress
4 Working Capital = Total Current Assets - Total Current Liabilities
5 Capital Employed = Tangible Networth6+ Total debt + Deferred Tax liability
6 Tangible Networth = Total assets - Total liabilities - Intangible assets
7 Cost of Investment = Bookvalue of investments
|For and on Behalf of the Board|
|For Brooks Laboratories Limited|
Gold/NCD/NBFC/Insurance and NPS
Gold/NCD/NBFC/Insurance and NPS