Brooks Laboratories Ltd Management Discussions.

Companys revenues stood at Rs. 5503.01 lacs experiencing a decrease of 3.3 % over the previous year sale of Rs.5690.42 lacs

(Rs in lacs)
PARTICULARS 2018-19 2017-18
Turnover 5503.01 5690.42
Other Income 287.76 24.02
Total Income 5790.77 5714.44
Expenditure 6339.34 6579.33
Profit before Depreciation, Interest & Tax (PBDIT) (548.57) (864.89)
Financial Expenses (Interest) 296.26 244.02
Profit before Depreciation and Tax (PBDT) (844.83) (1108.91)
Depreciation and Amortization 649.96 644.51
Profit before Tax (PBT) (1494.79) (1753.42)
Extraordinary items (Gain) (7.11) 0.81
Income Tax (net of MAT Credit) 14.23 372.14
Profit after Tax (1487.67) (1380.47)
Earnings per Share (in Rs.) (9.20) (8.53)

Revenues:

The turnover of the company for the year ended March 31, 2019 stood at Rs. 5503.01 lakhs as against Rs. 5690.42 lakhs for the previous year ended March 31, 2018; there was marginal decline over the previous year. The Decrease is due to selective participation in government institution business because of delayed payments.

Cost of material:

There has been marginal increase in the cost of materials as a percentage to Net sales, from 71.78% of sales in FY 2017-2018 to 73.72% of sales for this year. This increment is due to change of product mix & increase in Raw Material cost in International and Domestic market.

Employment Cost:

Sales in our Vadodara facility is picking up though at slow pace than expected due to delays in approvals in international markets. This increase in the employment cost by Rs. 35.70 lakhs, a 3.02% rise as compared to the previous year ended March 31, 2018 is due to annual increment in salaries.

Finance Cost:

Finance expense was Rs. 296.26 lakhs in Financial Year 2018-2019 versus finance cost of Rs. 240.43 in Financial Year 2017-2018. The finance cost is higher due to increased usage of working capital credits.

Depreciation:

There is increase in depreciation due to added depreciation of new capital goods for both facilities. (Rs. 649.96 in 2018-19 and Rs. 644.51 in 2017-18)

Tax:

There is no Tax liability for the financial year 2018-19.

Industry Structure and Developments

With more stringent regulatory requirements shake ups are expected to happen in the industry, we forsee few manufacturing facilities to close down who are unable to invest in upgradation.

Opportunities- Brooks has upgraded its baddi facility & is now certified by WHO GMP for injectables also. We are hopeful to get more sales after this certification.

Segment wise and product wise performance

Our sales was primarily from two segments i.e. third party manufacturing & government institution supplies, we have reduced our focus on government business due to delayed payments from government institutions.

Outlook

Outlook from Baddi is bright after obtaining WHO GMP certification for injectable facility in financial year 2018-19. Also Vadodara facility will get regulatory approvals from many countries which were applied last year. With more focus on international markets we expect better sales volumes & profit margins.

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. Also we have gone selective in government tenders due to delayed payment of various government agencies thus reducing our sales realization. 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 we expect to have multifold increase in sales in Vadodara facility.

Internal Control System and their adequacy

We have successfully implemented ERP to take better control systems of operations of manufacturing, marketing & purchase.

Human Resources Policy Mission Statement

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.

Vision Statement

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 a 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.

• Innovative

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

• Accountable

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.

• Transparent

We balance requests to share information clearly and openly while respecting the security of confidential and personal information entrusted to the department.

• Employees

We have 364 peoples employed on the rolls of the Company.

Risk management

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.

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 unfavourable 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 non complying 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 Laboratories Operations: Manufacturing:

The market competition has got intensified after introduction of GST due to discontinuation of tax advantage of tax free zone from baddi. We are braving ourself for increased competition with more focus on quality & operational efficiency. This may have pressure on profit margins in short term but long term remains positive with our commitment to quality & our experience to adapt to changed environment.

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.

Quality

Brooks is committed to comply with the new stricter quality norms of domestic regulators as well as international regulators where we intend to supply our products. We are constantly upgrading our manufacturing as well as laboratory facilities to meet the new norms. We are also investing in improving knowledge base of our production & quality control teams to meet new quality standards.

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.

Generics:

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.

Future proposals:

The Company looks for expanding its own marketing operations in current year to reduce dependence on third party business. We plan to add new territories & new products also to strengthen our marketing division which is performing well now. The proposed policy of new government to cap trade margins may be very helpful for us who has both manufacturing & marketing set up.

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 major capital investments in fy 2018-19 towards marketing of our products in domestic & international market. Company proposes to increase its marketing operations with increased geographic range & product range.

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.

International Taxation:

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.

For and on Behalf of the Board
For Brooks Laboratories Limited
Sd/- Sd/-
Rajesh Mahajan Rajnish Kumar Bedi
Place: Mumbai (Independent Director)
(Managing Director)
Date: 26.08.2019 (DIN:05287369)
(DIN:02000634)