Global Economy
The global economy is expected to grow at a slower pace in 2023 and
2024 than in 2022. The IMF has forecast global growth of 2.8% in 2023 and 3.0% in 2024,
down from 3.4% in 2022.
Persistently high inflation, which averaged about 9 per cent in 2022,
has prompted aggressive monetary tightening in many developed and developing countries.
Rapid interest rate hikes, particularly by the Federal Reserve in the United States of
America, have had global spill over effects, triggering capital outflows and currency
depreciations in developing countries, increasing balance of payment pressures and
exacerbating debt
sustainability risks. Financing conditions have tightened sharply amid
high levels of private and public debt, pushing up debt-servicing costs, constraining
fiscal space and increasing sovereign credit risks. Rising interest rates and diminishing
purchasing power have weakened consumer confidence and investor sentiment, further
clouding near-term growth prospects for the world economy. Global trade has softened to
tapering demand for consumer goods, the protracted war in Ukraine and continued supply
chain challenges.
Despite the slowdown, there are some bright spots in the global
economy. The United States is expected to continue to grow at a healthy pace, and emerging
markets and developing economies are expected to grow at a faster pace than advanced
economies. Inflation is also expected to remain elevated in 2023 and 2024. The IMF has
forecast inflation of 6.6% in advanced economies and 8.7% in emerging markets and
developing economies in 2023. The main risks to the global economic outlook are: (i) A
prolonged war in Ukraine, which could lead to a further escalation of energy and food
prices and a more pronounced slowdown in global growth; (ii) A more aggressive tightening
of monetary policy in major economies, which could lead to a recession; (iii) A sharp
slowdown in China, which could have a significant impact on global trade and investment.1
1 Source: IMF report.
Indian Economy
The World Bank now fears that the ongoing slump in global economic
growth will likely result in a "lost decade." Despite this gloom, many market
analysts believe that this could well be Indias decade. And there are enough reasons and
data to back this claim. Recent data revisions by India suggest the economy has fared
better than previously believed despite continuing global uncertainties. The International
Monetary Fund (IMF) expects India to grow by 5.9% in FY 2023-24 and by an average rate of
6.1% over the next five years.
Growth is expected to be constrained by slower consumption growth and
challenging external conditions. Rising borrowing costs and slower income growth will
weigh on private consumption growth, and government consumption is projected to grow at a
slower pace due to the withdrawal of pandemic-related fiscal support measures. The Future
growth will be contingent on investment. Growth in investments will be critical to meet
Indias rising demand and ensure noninflationary growth in the long run. The inability to
build up capacity would mean that India will have to suppress demand, failing which will
result in inflation spiralling up. The challenge is several headwinds have kept investors
at bay, and may likely continue doing so, at least in the near term.
Although headline inflation is elevated, it is projected to decline to
an average of 5.2 percent in FY23/24, amid easing global commodity prices and some
moderation in domestic demand. The Reserve Bank of Indias has withdrawn accommodative
measures to rein in inflation by hiking the policy interest rate. Indias financial sector
also remains strong, buoyed by improvements in asset quality and robust private-sector
credit growth.
GLOBAL PHARMACEUTICAL INDUSTRY
The total spending and global demand for medicines will increase over
the next five years to approximately $1.9 trillion by 2027, according to a new report
titled Global Use of Medicines 2023 - Outlook through 2027 from the IQVIA Institute for
Human Data Science.
The underlying growth rate of 3-6% in spend will be driven by new drug
launches and wider use of recently launched brands despite efforts by players to constrain
their budgets, and the impact of lower cost options.
Increased use of medicine: Medicine use - measured in defined daily
doses - grew by 36% over the past decade, driven by increased access to medicines.
However, growth is projected to slow through 2027 and reach a total of more than 3.4
trillion doses, up about 8% from the 2022 level. Highest volume growth
is expected in Latin America, Asia and Africa, driven by a mix of
population growth and expanded access, while North America and Europe will see very low
growth. Per capita medicine varies by region with Japan and Western Europe having more
than double the use of most other regions.
Spending and growth by regions: The global medicine market — using
invoice price levels — is expected to grow at 3-6% CAGR through 2027 to about $1.9
trillion with diverging trends by region. Growth in developed economies continues at
relatively steady rates with new products offset by patent expiries; Latin America,
Eastern Europe and parts of Asia are expected to grow strongly from volume and greater
adoption of novel medicines. The U.S. market growth, on a net price basis, is forecast to
adjust -1 to 2% CAGR through 2027, down from 4% CAGR for the past five years. The impact
of exclusivity losses will increase to $140.7 billion over five years, including
significant biosimilar introductions in 2023 and 2024. New brand spending in the U.S. is
projected to be higher than the last five years but will be a smaller share of total
spending. Key elements of the Inflation Reduction Act (IRA) are expected to impact
medicine pricing and cost sharing among stakeholders, even though the specific impact is
yet to be determined as no baseline has been established and the detailed plans for
implementation of IRA for medicine pricing and cost sharing have not been provided.
Impact of COVID-19 on the use of medicines: COVID-19 continues to have
an impact on pharmaceutical markets globally and is estimated to expand the net cumulative
pharmaceutical market by $500 billion from 2020 through 2027, mostly linked to vaccines.
Disruptions in demand for many other medicines, due to delayed diagnoses, continue to play
out although global market growth is forecast to return to prepandemic projected levels by
2024. All regions around the world have exceeded previously projected first- wave
vaccination rates while booster utilization is lagging. This creates substantial
uncertainty about the future of the pandemic and the potential risks of re-emergence of
infections, especially in regions of the world with the lowest immunization and booster
rates.
Growth in spending on specialty medicines: Specialty medicines will
represent about 43% of global spending in 2027 and 56% of total spending in developed
markets. Global spending on cancer drugs is expected to reach $370 billion by 2027, with
growth accelerating from the launch and use of novel drugs and limited new biosimilar
impact. Immunology spending growth will slow to 3-6% through 2027 from price reductions
associated with biosimilar competition as volume growth continues at 12% annually. New
therapies for
rare neurological disorders, Alzheimers and migraines are expected to
drive spending growth in neurology.
Biotech spending: Biotech will represent 35% of spending globally and
will include both breakthrough cell and gene therapies, as well as a maturing biosimilar
segment. Major advances are expected to continue, especially in oncology and immunology.
The outlook for next-generation biotherapeutics includes a definitively uncertain range of
clinical and commercial successes.
RECENT TRENDS
Pharma businesses are reorganising their business models, rationalising
biopharma manufacturing, improving financial decisions, reducing human error, boosting
performance, and speeding up time to market thanks to AI and big data technologies. Each
stage of the pharmaceutical value chain, including drug development, clinical trials,
logistics, commercialization, marketing, and pharmacovigilance, benefits from the
technologies synergistic interaction.
In 2022, it was noted that there had been an increase in alliances and
collaborations between major pharmaceutical companies and suppliers of AI technology. For
instance, Sanofi and Exscientia collaborated to create a pipeline of precision-engineered
pharmaceuticals for oncology and immunology therapies early this year. With the help of
Exscientias end-to-end AI- driven platform and real patient samples, the firms have
teamed up once more to create about 15 novel specific molecular options against oncology
and immunology illnesses.
THE NEWEST FASHION IS BLOCKCHAIN
Blockchain technology has steadily established itself as a significant
new technology in the pharmaceutical industry. Each record, event, or transaction is kept
in sequential, verifiable blocks on an open, decentralised, secure public ledger. A secure
and convenient method of legitimate information sharing between enterprises is provided by
blockchain.
Blockchain has a huge impact on the production of pharmaceuticals, the
tracking and verification of medical supplies, the prevention of record fraud, and
research and development. Its use is expected to grow in the future years. With data, the
system enhances end- to-end supply chain visibility. Blockchain fills the gaps between
stakeholders by giving everyone a precise, realtime perspective of the supply chain, which
is essential for ensuring the resilience of manufacturing and the supply chain.
The General Data Protection Regulations (GDPR) and the Drug Supply
Chain Security Act (DSCSA) of the FDA are anticipated to go into full effect in 2023. To
comply with these rules, the pharmaceutical industry will need blockchain technology to
enhance traceability and visibility throughout the value chain.
R&D IN PERSONALISED MEDICINE IS INCREASING
Tailor-made or precision medicine offers immense promise for curing a
wide range of illnesses, with the worldwide custom medicine industry predicted to rise to
USD 717 billion by 2025. Particularly in terms of illness treatment and prevention,
customised medicine has a lot of potential to advance healthcare in the future.
Research and development processes for customised medicine have
advanced significantly as a result of recent advancements in big data, artificial
intelligence, and genomic testing. Due to the availability of data, improvements in
processing power, and artificial intelligence (AI), researchers may now create customised
treatments using a constantly expanding collection of medical data.
Digitalization has become essential in all areas for pharmaceutical
businesses to maintain leadership, deliver accurate results, and improve operations.
Companies that stay at the forefront of technical advancements are those that continue to
pave the way and open up new chances in the healthcare sector.2
The Pharmaceuticals market shows solid growth, which is mainly driven
by innovative drugs and an increasing demand for healthcare, especially in emerging
countries. Compared to the revenue generated by prescription drugs, OTC pharmaceuticals
only play a minor role. The market for prescription drugs, for its part, is dominated by
original products. This means that the larger number of OTC products, generics, and
biosimilars sold cannot counterbalance the significantly higher prices of original
products.
The Pharmaceuticals market is characterized by disruptions due to
innovative drugs and expiring patents. Research and development, which involves large
costs as well as high risks and considerable uncertainties, is the main market driver. In
general, the Pharmaceuticals market is highly regulated. It is usually characterized by
strict approval processes and strong patent legislation. Regulations, the availability and
approval of drugs, and the period of exclusivity vary greatly from country to country.
Oncology Drugs is by far the largest market segment. In terms of
regional share, the U.S. dominates the market, with Europe, Japan, and China also playing
a significant role. The different segments have been affected very differently by the
COVID-19 pandemic. While vaccines and antiviral drugs against the virus are generating
additional revenue, and the development of mRNA drugs has received a boost, most
pharmaceutical fields have been negatively impacted, mainly due to fewer new patients and
barriers to healthcare access. After a shock in 2020, growth rates are back to
pre-pandemic levels in most segments.3
INDIAN PHARMACEUTICAL INDUSTRY
The Pharmaceutical industry in India is significantly contributing to
healthcare globally. The Department of Pharmaceuticals has estimated the current size of
the industry is about USD 41 Bn including drugs and medical devices.
India continues to play a substantial role in manufacturing various
important, high-quality and cost-efficient medicines for Indian and global markets. The
Pharmaceutical industry in India has unique characteristics with the domination of branded
generics, local brands and low-price levels with intense competition.
Known as the "Pharmacy of the World", India plays a major
role in the manufacturing and supplying of medicines globally. The pharma exports from
India reach more than 200 countries in the world. Indian medicines are preferred around
the world because of their high quality and low price. India is among the top 10
formulation exporting countries in the world, 4th largest by volume and 10th largest by
value.
India is also the largest "generic only" exporter in the
world, accounting for 20% of the global exports in generics.
The Pharmaceuticals industry has shown tremendous progress in terms of
infrastructure development, technology base and a wide range of products. The industry has
developed GMP Certified (Good Manufacturing Practices) facilities to produce different
dosage forms.
India has the second-highest number of United States Food and Drug
Administration (USFDA) approved facilities and labour costs in India are lower than other
manufacturing hubs by up to 40%.
Despite recent headwinds, the Pharmaceutical industry in India has
grown rapidly. India is likely to become one of the top 3 Pharmaceutical industries by
2030.
Generic penetration in high-value healthcare markets (e.g., US) is
growing significantly, with India supplying over 20% of the demand in major geographies.4
COMPANY OVERVIEW
We are possibly the only mid-sized company in Indias pharmaceutical
sector to be engaged in the R&D and manufacture of finished formulations, APIs,
clinical research, front-end generic presence in Latin America, brand marketing in
Francophone Africa and a USFDA/EU- GMP approved injectable facility. The Companys unique
business model has helped generate the resources to build world-class infrastructure. The
Companys debt- free and cash surplus situation positions it attractively to address the
opportunities of the future.
One of the main reasons for the success can be attributed to the wide
range of products offered across diverse geographies.
We have approx. 4000+ products registrations across the globe with 700+
pharmaceutical formulations & over 36 therapeutic sections.
CAPLIN AT A GLANCE Our Growth engines
Caplins core business which is focused on Latin America and
Francophone Africa is expected to grow at above industry-average pace with margins
expected to improve with increased branded generics business.
Our aspiration is to have exceptional compliance record and focus on
niche products which continues to be in shortage in US market. Caplin believes US business
to be one of its primary engines that will drive growth.
With the backward and forward integration, we will save cost, capture
more market and control supply chain which is expected to boost earnings.
Caplins DNA of remaining debt-free and self-sustenance is highlighted
by increasing cash surplus over the years. Strong Balance sheet of Caplin acts as an
anchor for our long-term vision. Caplin plans to enter more regulated markets such as
Canada, Australia, China, Russia/CIS as well as enter the bigger LATAM markets of Mexico
and Brazil in the near to medium term horizon.
FINANCIAL HIGHLIGHTS
* Revenue grew by 16.4% YoY to Rs1,523 Crores
* Profit after Tax (PAT) at Rs377 Crores up 22.2% YoY
* Cash and Cash equivalents at Rs772 Crores, an increase of Rs78 Crores
YoY after Capex
* Cash flow From Operations at Rs271 Crores
* Capex at Rs194 Crores.
* Basic EPS grew by 25% to Rs49.62 in FY23 against Rs39.61 in FY22
OUR CORE BUSINESS -TAPPING THE UNTAPPED MARKETS
Caplin covers a wide spectrum of pharmaceutical formulations and
therapeutic segments across 23 countries with revenue of Rs1,523 Crores in FY23.
OPERATIONAL HIGHLIGHTS
CAPEX allocation
Caplin has ventured into a Capex journey of ~500- 550 Crores for
expanding existing capacities, widen its product portfolio and backward integrate majority
of the products. We are happy to share that all of the planned Capex is funded through
internal accruals only.
Capacity expansion at Caplin Steriles
Phase 2 of the facility is nearing completion. Post completion of this
facility, we will be able to leverage large batches with faster filling speed for
injectable vials. We are also adding a Pre-Filled Syringe Line which is a new delivery
system not earlier available with us.
Phase 3 of the facility will have a high Lyophilization capacity.
ONCOLOGY FACILITY
Phase 1 of the Oncology Facility will have Oral Solid Dosages and Phase
2 would be manufacturing Injectables.
BACKWARD INTEGRATION
We are targeting to become a backward integrated Company with own APIs
for 70% of all filings in US by 2024, a critical differentiator for Generic Injectables.
For this purpose, we have acquired an API plant in Visakhapatnam, Andhra Pradesh. This
facility will be refurbished into a regulated markets compliant plant, for general
category APIs. This is part of the Companys backward integration initiative, both for
Injectable and OSD APIs.
Oncology API site construction starting in adjacent facility to the
Finished Dosages Oncology plant at Kakkalur, Chennai.
CAPACITY EXPANSION AT ROW FACILITY
Softgel capacity expansion has been completed. It is twice the current
capacity established for existing markets.
OSD Facility for Global markets: Construction work to commence shortly
on a new Oral Solid Dosages plant in Thervoy SIPCOT, near Chennai. The facility will
increase existing OSD capacity by three times and cater to additional demand from larger
LATAM markets such as Mexico and Brazil, in addition to regulated markets such as US and
EU.
FINANCIAL RATIOS
Below are some of the Key Financial ratios:
| Particulars |
Consolidated |
% Variance |
Standalone |
% Variance |
Reason (If variation is more than 25%) |
|
FY 2022-23 |
FY 2021-22 |
|
FY 2022-23 |
FY 2021-22 |
|
|
| Debtors Turn Over Ratio |
4.13 |
4.26 |
(3.05)% |
7.45 |
6.94 |
7.31% |
|
| Inventory Turnover Ratio |
2.57 |
2.74 |
(6.24)% |
4.2 |
6.05 |
(30.57)% |
Standalone: Higher closing Inventory considering safety stock
in the current year |
| Current Ratio |
5.80 |
6.25 |
(7.18)% |
4.52 |
6.13 |
(26.18)% |
Standalone: Increase in other Current liabilities (Advance
received from Customer) in the current year |
| Interest Coverage Ratio |
NA |
NA |
- |
NA |
NA |
- |
|
| Debt Equity Ratio |
NA |
NA |
- |
NA |
NA |
- |
|
| Operating Profit Margin % |
32.64% |
33.13% |
(1.47)% |
50.82% |
47.24% |
7.57% |
|
| Net Profit Margin % |
24.76% |
23.58% |
5.00% |
37.33% |
32.14% |
16.15% |
|
| Return on Net worth %(RONW) |
22.06% |
22.74% |
(2.96)% |
22.63% |
22.24% |
1.73% |
Consolidated : Marginal decrease due to increase in base
Standalone: Marginal increase due to receipt of higher dividend income during the year |
I RISK MANAGEMENT
The Company has a well - established process of risk management which,
inter-alia, includes identification of design gaps, analysis and assessment of various
risks, formulation of risk mitigation strategies and implementation of the same to
minimise the impact of such risks on the business and operations. The process ensures that
new risks, which might arise, or the impact of existing „ risks which might have
increased, ¦ are identified and a strategy is put in place for mitigating such
risks.
The Company has a robust Enterprise Risk Management (ERM) framework
which enables us to manage our risks better. It also tracks significant
external developments and internal challenges to recognise new threats and their potential
impact on our risk profile.
The major risks identified by the management are regulatory,
competition, supply chain disruption, cyber & data security along with economic and
political risks. A review of the risk management policy is carried out by the Risk
Management Committee and the Board of Directors.
The Board of Directors of the Company directly oversee the risk
management framework. The Board has formed a Risk Management Committee which periodically
examines critical events impacting the risk profile, existing and emerging risks and other
uncertainties, and monitors the progress of planned actions.
The Risk Management Committee meets periodically and it includes the
CFO, Independent Director and the Managing Director of the Company. In addition, the
Companys senior leadership team undertakes various risk governance measures at the
operational level as per the requirements. While every company, as part of its risk
management strategy, tries to put in place mitigation measures to the extent possible,
risks cannot be wished away. We have listed a summarised account of some of our key risks
and mitigation measures drawn from management reviews and deliberations of RMC.
SOME OF THE IDENTIFIED RISKS AND ITS MITIGATION STRATEGY
Geographical risk
Dependence of the Company on a specific geography can affect balanced
growth.
Mitigation strategy
The Company has a strong presence in Latin America. On the one hand,
the Company is enlarging its presence in Latin America and on the other hand the Company
has been gradually stepping up its presence in the US and other regulatory markets, which
will reduce its dependency in Latin America in future.
Currency fluctuation and receivables risk
The Company is exposed to currency fluctuations due to its
international presence
Mitigation strategy
Rising costs due to currency fluctuations are absorbed through natural
hedging. The Company receivables are at 97 days in 2022-23 as compared to 92 days in
2021-22. During the last few years, the increase in the cycle was on account of entering
into the tender-based segment, marked by secure large sales to government agencies
carrying a longer receivables cycle.
Quality risk
The Companys top line and brand could be affected by a decline in
product quality
Mitigation strategy
The facilities of the Company are, inter-alia, US FDA, Brazil ANVISA
and WHO-GMP approved, strengthening quality assurance. While there is a robust in-house QC
and QA SOPs and teams for ensuring high level of quality adherence, the Company also
undertakes periodic audits (external and internal) to benchmark practices in line with
global standards.
Liquidity risk
The Companys ability to fund operations or report surpluses could be
affected by a global economic slowdown.
Mitigation strategy
The Cash and Bank balance (including liquid investments) of the Company
stood at Rs. 772 Cr as on 31 March 2023. The Companys Average working capital cycle was
141 days in 2022-23 compared with 137 days in 2021-22.
Competition risk
The Companys prospects can be affected by rising competition
Mitigation strategy
The Company has selected to market products marked by superior quality.
It is present in countries with relatively low competition. It has networked pharmacies
and medical practitioners to its portal, enhancing their convenience and effectiveness. It
is addressing the injectables space within US, an area marked by relatively low
competition.
Policy risk
The business of the Company might be hampered due to change in policies
regarding generic medicines
Mitigation strategy
Medical needs have witnessed a rapid growth owing to growing population
and changing everyday habits. Increase in prices of branded drugs has led to the promotion
of generics by various governments, strengthening a case for affordable health care. The
Company has reinforced its position in this growing space through the delivery of quality
and validated generic products.
Internal control systems and their adequacy
The Company maintains appropriate systems of internal control,
including monitoring procedures, to ensure that all assets are safeguarded against loss
from unauthorized use or disposal. Company policies, guidelines and procedures provide for
adequate checks and balances and are meant to ensure that all transactions are authorized,
recorded and reported correctly.
The Audit Committee approves and reviews audit plans for the year based
on internal risk assessment. Audits are conducted on an ongoing basis and significant
deviations are brought to the notice of the Audit Committee of the Board of Directors
following which corrective action is recommended for implementation. All these measures
facilitate timely detection of any irregularities and early remedial steps.
The Audit Committee of the Company also reviews the reports of the
internal auditors quarterly and recommends steps for further improvement of the internal
controls. The Company has also implemented an Internal Financial Control (IFC) framework
to ensure proper internal controls over financial reporting.
INDUSTRIAL RELATION AND HUMAN RESOURCES
Industrial Relations scenario continued to be cordial during the year.
The Company regards its employees as one of its great assets and accords high priority to
training and development of employees. The employees have also shown their relentless
dedication to the Company even in these tough times. Caplins employees have supported the
management and enabled the Company to fulfil its purpose and achieve its goals over the
last many years. This high level of commitment is rooted in their passion for our purpose
and a sense of ownership towards it.
The Company is also committed to the wellbeing of its people, it offers
a safe working environment that nurtures talent, maintains a culture of openness and
transparency, and also fosters ownership among them. The Companys decisions were aligned
with professional and personal goals of employees, enhancing pride of association.
HR HIGHLIGHTS DURING THE YEAR:
1. Recruitment and Talent Acquisition: The Company
focussed on attracting and retaining top talent. We utilized innovative
digital strategies and technologies to identify and recruit skilled professionals who
align with the companys values and culture.
2. Employee Training and Development: Caplin recognizes the importance
of fostering a continuous learning culture. It had initiated various measures to enhance
employee training and development programs to nurture the skills and capabilities of the
workforce. This includes both technical and soft skill training initiatives to enhance
productivity and promote career growth.
3. Employee Engagement and Well-being: The wellbeing and satisfaction
of employees are crucial for maintaining a positive work environment. The Company is
working to implement initiatives to strengthen employee engagement, such as organizing
team-building activities and events, recognizing employee achievements etc.
4. Diversity and Inclusion: Caplin Point values diversity and is
committed to fostering an inclusive work environment. The Company is prioritizing
initiatives that promote diversity, equity, and inclusion.
5. Performance Management: The Company has a performance management
system that covers the entire workforce. The process of further improving the goal-setting
framework and establishing regular performance feedback mechanisms are underway.
Overall, in the year 2022 - 2023, Caplin had concentrated on attracting
and retaining top talent, enhancing employee development and engagement, fostering
diversity and inclusion, and improving performance management practices.Total number of
employees at consolidated level as on March, 31, 2023 stands at 2,098.
ADHERENCE TO ACCOUNTING STANDARDS
The Company continues to adhere to standard accounting policies under
the Indian Accounting Standards (Ind AS), as applicable.
CAUTIONARY STATEMENT
The statement made in this section describes the Companys objectives,
projections, expectation and estimations which may be ‘forward looking statements
within the meaning of applicable securities laws and regulations. Forward-looking
statements are based on certain assumptions and expectations of future events. The Company
cannot guarantee that these assumptions and expectations are accurate or will be realised
by the Company. Actual result could differ materially from those expressed in the
statement or implied due to the influence of external factors which are beyond the control
of the Company. The Company assumes no responsibility to publicly amend, modify or revise
any forwardlooking statements on the basis of any subsequent developments.
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