caprihans india ltd Management discussions

Industry Outlook

India is the largest provider of generic drugs globally and is known for its affordable vaccines and generic medications. The Indian Pharmaceutical industry is currently ranked third in pharmaceutical production by volume after evolving over time into a thriving industry growing at a CAGR of 9.43% since the past nine years. Generic drugs, over-the-counter medications, bulk drugs, vaccines, contract research & manufacturing, biosimilars, and biologics are some of the major segments of the Indian pharma industry. India has the most number of pharmaceutical manufacturing facilities that are in compliance with the US Food and Drug Administration (USFDA) and has 500 API producers that make for around 8% of the worldwide API market.

Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK. The domestic pharmaceutical industry includes a network of 3,000 drug companies and ~10,500 manufacturing units. India enjoys an important position in the global pharmaceuticals sector.

According to a recent EY FICCI report, as there has been a growing consensus over providing new innovative therapies to patients, Indian pharmaceutical market is estimated to touch US$ 130 billion in value by the end of 2030. Meanwhile, the global market size of pharmaceutical products is estimated to cross over the US$ 1 trillion mark in 2023.

Market Size

Market size of India pharmaceuticals industry is expected to reach US$ 65 billion by 2024, and ~US$ 130 billion by 2030. According to the government data, the Indian pharmaceutical industry is worth approximately US$ 50 billion with over US$ 25 billion of the value coming from exports. About 20% of the global exports in generic drugs are met by India. India is among the top 12 destinations for biotechnology worldwide and 3rd largest destination for biotechnology in Asia Pacific.

In 2022, Indias Biotechnology industry has crossed US$ 80.12 billion, growing 14% from the previous year. The Indian pharmaceutical industry has seen a massive expansion over the last few years and is expected to reach about 13% of the size of the global pharma market while enhancing its quality, affordability, and innovation.

India is the 3rd largest producer of API accounting for an 8% share of the Global API Industry. About 500+ different APIs are manufactured in India, and it contributes 57% of APIs to prequalified list of the WHO. The current market size of the medical devices sector in India is estimated to be US$ 11 billion and its share in the global medical device market is estimated to be 1.5%. Indian pharma companies have a substantial share in the prescription market in the US and EU. In the global pharmaceuticals sector, India is a significant and rising player.

Source – India Brand Equity Foundation

Opportunities, Threats & Outlook

While leading pharmaceutical contract manufacturers in India are focusing on ensuring innovative products. To meet sustainability objectives, several manufacturers are also implementing innovative and environmental-friendly packaging. Packaging plays a crucial role in the pharma industry, where its function extends beyond serving as a branding aid and providing barrier protection to products for the shelf-life period. It is increasingly playing a vital role in ensuring overall patient safety by carrying key information pertaining to the product, ensuring tamper-evidence and traceability of products. The growing population, rising health awareness, and increasing life expectancy can be attributed to the growth of the pharmaceutical packaging industry. Moreover, growing awareness of environmental issues due to traditional packaging material and the adoption of new regulatory standards for packaging recycling is also driving the pharmaceutical packaging industry in India.

The market expansion, however, is projected to be restrained by growing packaging costs brought on by strict laws and anti-counterfeiting initiatives. Thus, one of the difficulties faced by makers of pharmaceutical packaging is containing these rising packaging costs. India provides one of the lowest manufacturing costs in the world and is more economical than the USA and almost half of Europe. It is the worlds largest supplier of generic medicines (20% to 22%of global export volume). It fueled the research and development of efficient packing solutions for the pharmaceutical sector that substantially prevents contamination and provide drug safety and convenience of delivery and handling.

In emerging markets, India and China are quickly catching up with the US, Western Europe, and Japan markets as pharmaceuticals are exported in large quantities to developed countries from India. It became essential to comply with the packaging standards of developed countries in emerging markets. As emerging markets offer cost-effective, standardized packaging solutions, many offshore companies are outsourcing their business to countries such as India and China for cost-effective solutions.

Business Performance

• Pharmaceutical companies rely more on packaging and labeling as media to promote and protect their products in the increasing counterfeit market and meet the new safety regulations. Plastic packaging gained popularity due to its properties such as barrier against moisture, high dimensional stability, high impact strength, resistance to strain, low water absorption, transparency, heat and flame resistance, etc.

• Polyvinyl chloride and PVDC (polyvinylidene chloride) are mostly used in pharmaceuticals as primary packaging materials that protect pharmaceutical products against oxygen and odor, moisture, water vapor transmission, contamination, and bacteria. It makes both PVC and PVDC the material of choice for blister packaging.

• PVC is the third most widely produced synthetic plastic polymer used across the globe as it includes excellent organoleptic properties, which means it does not affect the taste of packaged food or medicine. PVC mono films protect against contamination by helping to prevent the spread of germs during manufacture, distribution, and display and are sunlight and UV rays resistant.

• Blister packaging is used for various preformed plastic packaging in small consumer goods, food, and pharmaceuticals. The main component of a blister pack is a cavity in a moldable web, usually a thermoformed plastic. Drug packaging is a technology used to improve treatment compliance and patient safety. Sustainable plastic packaging in the pharmaceutical industry includes excellent potential for future development in the country.

• At Caprihans, we are working out various options of PVC free, environmentally sustainable options to replace the traditional packaging.

Internal Control System and Adequacy

The Company has a well-placed and adequate Internal Financial Control system, which ensures that all the transactions are authorized, recorded and reported correctly as well as is compliant with the Companys policies and Standard Operating Procedures (SOPs). The Internal Auditors independently evaluate the adequacy of the internal controls and report to the Audit Committee of any major deviations.

Financial Performance

The Company acquired the pharma packaging business of its holding Company Bilcare. As a result of the acquisition, the revenue of the Company is now Rs. 947 crores against Rs. 397 crores in the previous year and EBITDA are now Rs. 71 crores against Rs. 27 crores in the previous year. Similarly, PAT is now Rs. 72 crores against Rs. 17 crores (pre acquisition) in the previous year.

Key Change in Financial Ratios

In line with the Ind AS reporting requirement under the Business Combination (Ind AS 103), the effective date of the acquisition is 1st April, 2021 and hence the financials have been accordingly reinstated.

Due to the acquisition of the pharma packaging division of

Bilcare, the sales & profitability has improved. Hence, current ratio, debt-equity ratio, debt service coverage ratio, return on equity, return on capital employed and net profit ratio have improved compared to previous year. Refer Note 40 for details.

Risks and Concern

The Company is subjected to various risks affecting its financial health, both in terms of external environment and internal operations. Raw material input prices linked to crude & LME fluctuations, currency fluctuations and financialcosts are some of the major risks.

Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys objective, projection, estimates, and expectations may be ‘forward looking statements within the meaning of applicable laws and regulations. Actual outcome may differ substantially or material from those expressed or implied. Important developments that could affect the Companys operation include significant the political and economic environment in India or overseas in key markets, applicable statues, litigation, labor relations, exchange rate fluctuation, interest and other costs.