Centenial Surgical Suture Ltd Management Discussions.

Your Companys management believes that it has been objective & prudent in making estimates and judgements relating to the financial statements & believes that these financial statements are a fair representation of your Companys operations and profits for the year. To survive and thrive, in a sector in constant transition, suture makers need to transform themselves. Analysts are of the view that “globalization” is no longer a matter of choice and suture businesses long-term success depends on it. The businesses that ride the next wave of growth will be those that understand the trends and refine their strategies, business models and portfolios according to a truly Indian mindset.

Overview

2019 has been a challenging year that saw the September quarter GDP growth plunge to 4.5% y-o-y, primarily due to a sharp deceleration in investment growth. Corrective measures to boost investments and infuse liquidity in the economy, such as reducing the repo rate and slashing the Corporate Tax rate have yet to bear fruit. In India, growth softened in 2019 as economic and regulatory uncertainty, together with concerns about the health of the non-banking financial sector, weighed on demand. There was a strong hope of recovery in the last quarter of the current fiscal. However, the coronavirus epidemic made the recovery extremely difficult in the near to medium term. The outbreak has presented fresh challenges for the Indian economy now, causing severe disruptive impact on both demand and supply side elements, which has the potential to disturb Indias growth story. The IMF has cut down its projections for Indias economic growth from its earlier forecast of 5.8% to a steep 1.9% for the current financial year, the lowest since the 1991 balance of payments (BoP) crisis. The RBI unleashed a 3.74 lakh crore of liquidity on the Indian banking system as it vowed to do whatever it takes to support financial markets hit by the spread of an unprecedented health emergency.

The Company registered sales of Rs.5561.43 lakhs in the financial year ended March 31, 2020 and net profit after tax of Rs.129.59 Lakhs. The technical functioning of the manufacturing facility as indicated by the above-mentioned results, the capacity utilisations was quite satisfactory and production levels has selectively improved as required.

Impact of Covid-19 on the Industry

The spread of Covid-19 has created a global healthcare crisis, and has led to an unprecedented response from people, communities and systems. Healthcare workers on the front lines are giving their all to contain, treat and reduce the impact of this pandemic. The pharmaceutical and life science industry has risen to the challenge by rapidly mobilising to join the fight against the virus. Their support extends beyond the development of treatments and vaccines for Covid-19. Across countries, the industry offers people, expertise, and financial support to the healthcare systems with which they partner. India has banned the export of critical APIs, essential medicines, specific medical devices, sanitisers, surgical masks, and ventilators - to ensure there is no shortfall in the domestic market. Most large pharmaceutical manufacturing companies are monitoring their supply chains and have reiterated their commitment to continued supply with minimum disruptions. Impact Economic impact on growth prognosis - A downturn in the economic outlook could negatively impact pharmaceutical spending in countries with high out-of-pocket medical expenditure Upsurge in demand for symptomatic medicines - Short-term boost in volume through retail channels as the public stockpiles on analgesics and cough and cold preparations Travel restrictions and medical tourism - Short-term negative impact on pharmaceutical markets reliant on medical tourists Impact on APIs/generics - Potential API and generic shortages could lead to medium-term price increases Delays in non-Covid treatment - Postponement of non-urgent treatment may lead to a short-term deceleration in volume growth Impact on innovation - A short-term negative impact on sales growth may result from postponement of new product launches.

Suture Industry

The likely duration, intensity and spread of the coronavirus has brought in a lot of uncertainty into the global and domestic economic outlook. The concerns have transformed from the initial impact of imports from China on the domestic supply chains, to the domestic and external demand shock. The duration of the same remains uncertain, with social distancing and lockdowns raising the prospects of production shutdowns and job losses in some sectors. A revival in domestic investment is likely to be hindered, given the increased risk aversion on a global scale, and renewed concerns about resilience of the financial sector. In the near term, the negative impact of the Covid-19 outbreak on economic growth and sentiment may be modestly mitigated by higher government spending, a brighter outlook for crop yields and emergency stockpiling of essential items. Furthermore, the fall in commodity prices would provide mild cushioning to earnings in the near term, which provides some comfort.

The global surgical suture market is projected to reach USD 5.02 billion by 2023 form USD 3.86 billion by 2018, at a CAGR of 5.4% from 2018 to 2023. The global market for surgical sutures is witnessing steady growth primarily due to the increasing number of surgical procedures conducted, globally. The favourable reimbursement scenario for a number of surgical procedures and the launch of advanced sutures are further contributing to the market growth. The report segments the surgical sutures market by product, type, application, end user, and region. Based on product, the surgical suture market is segmented sutures thread and automated suturing device. The suture threads segment is expected to command the largest share of this market majorly due to the greater preference for suture threads for wound closure and their lower cost as compared to automated suturing devices. Based on type, the surgical suture market is segmented into monofilament and multifilament sutures. The multifilament / braided segment is expected to account for the largest share of the surgical sutures market. The growth of this segment is driven by the increasing number of complex surgeries, rising geriatric population, and favourable reimbursement policies for hospital treatments. Based on application, the surgical sutures market is segmented into cardiovascular surgery, gynaecological surgery, orthopaedic surgery, ophthalmic surgery, general surgery, cosmetic surgery, and other applications. In 2020, the cardiovascular surgery segment is expected to dominate the surgical sutures market. The largest share of this application segment can be primarily attributed to the large number of cardiovascular surgeries performed across the world as a result of the high prevalence of cardiovascular diseases (CVDs). Based on the end user, the surgical suture market is segmented into hospitals, ambulatory surgical centres and clinics & physician offices. Among these, the hospitals segment is expected to account for the largest market share in 2020 - 2020. The large share of this segment is attributed to the increasing number of complex surgeries performed in hospitals, rising geriatric population, favourable reimbursement policies for hospital treatments, and increasing number of new hospitals established, especially in emerging countries. Asia is expected to register the highest CAGR during the forecast period owing to the regions growing medical tourism industry, rising prevalence of chronic diseases, and favourable reimbursement scenario. Moreover, the key surgical sutures manufacturers are also focusing on gaining a competitive edge in these high-growth markets, which is aiding the growth in Asia. However, the presence of alternative Wound Care management products and growing preference for minimally invasive surgeries are some of the factors expected to limit the growth of the market to a certain extent. The global surgical sutures market size is increasing in the number of surgeries due to unhealthy lifestyle and aging population are anticipated drive the market. Improved safety and efficacy of various surgeries due to technological advancements is also expected to boost the market demand. Initiatives, such as acquisitions and partnerships, undertaken by key companies for product development and distribution activities are expected propel the market further during the forecast years. Flexible government regulations for surgical procedures, aging baby boomers, and the introduction of technologically advanced products are likely to increase number of surgeries and thereby the market in the coming years and surgeons will perform surgeries ranging from tooth extraction to open-heart procedure. Increase in awareness about surgeries in the developing region, investment by market players in emerging markets, and developing imaging and diagnosis techniques are the other key factors to boost the growth in coming years.

Based on type, the market has been segmented into absorbable and non-absorbable sutures. In 2017, absorbable suture accounted for the largest share of the market and is expected to maintain its position during the forecast period. This can be attributed to the ability of the suture to provide temporary support to wound until it heals significantly. Furthermore, it is cost effective as it dissolves in the body after a certain period. Non-absorbable sutures are majorly used on skin wound closure where stitches can be removed after few weeks or in a stressful internal environment where absorbable sutures are unable to fulfill the requirement. Special silk, stainless steel wires, synthetics polypropylene, polyester, and nylon are the major material used for non-absorbable sutures. Based on the type of filament, the sutures market has been segmented into monofilament and multifilament sutures. Multifilament accounted for the maximum market share due to its greater strength, more flexibility, and pliability. Increased number of complicated surgeries, availability of more products, and high cost over monovalent sutures are likely to drive the segment in the coming years. Based on application, the surgical sutures market is divided into ophthalmic surgery, cardiovascular surgery, orthopedic surgery, neurological surgery, and others. Cardiovascular surgery accounted for the largest market share and is expected to expand at the fastest CAGR during the forecast period. This can be attributed to the increasing incidence rate of cardiovascular diseases and technological advancements in diagnostics, imaging, and surgical tools. The others segment includes gynecology and obstetrics surgery, urology, gastrointestinal surgery, general surgery, and oral surgery. The increasing number of obese population and rise in the number of womens health issues are likely to drive this segment significantly over the forecast period. Asia Pacific is expected to grow at a rapid pace over the forecast period owing to the introduction of technologically advanced products due to investment by market players in this region, high volume of surgeries, and growing consumer disposable income levels. China, Japan, and India are the major markets in the Asia Pacific region. Increasing medical tourism is another key factor for the rise in the number of surgical procedures and thereby sutures market in the region.

Finished goods prices witnessed a sudden drop. Thankfully, due to your companys wide range of products and through an optimum mix of inventory management and buying strategy, we could withstand this shock, and this partially impacted the profit margins during the year.

Quality

We have been able to create a consistent and credible track record of excellence due to our determined efforts to sustain world-class infrastructure and quality standards. We are continuously delivering and exceeding the expectations of our surgeons. We follow the philosophy of ‘Quality for all patients and Surgeons. Across all our manufacturing sites, we have put in place quality systems that cover all areas of business processes — from supply chain to medical device delivery — to ensure consistent quality, efficiency and safety of products. Regular audit programmes validate our attempts to deliver consistent quality. Quality risk management procedures are established and followed for internal audits, failure inquiries and implementation of permanent corrective measures. Our quality management systems are continually monitored, evaluated, and upgraded to meet evolving industry regulations and best practices. We continue to strengthen the quality process with the implementation of digitisation and Quality Management System (QMS) tools. The use of these tools enables us to keep pace with the growing number of processes and documentation in R&D and manage compliance and risk efficiently. Your Company has been consistently meeting the Quality Objectives of ISO 9001:2015, ISO 13485:2016, WHO-GMP, ISO 45001:2018 and medical devices are in conformity to medical device directives 93/42/EEC, Medical Device Rules, 2017.

Economic Environment

Analysts expect the Financial Year 2020-2021, Gross Domestic Product (GDP) growth to fall mainly on the back of a Covid 19 pandemic in the industrial sector. The GDP growth forecast for Financial Year 2020 - 2021 is therefore much lower.

Research and Development

The Company has achieved the following through Research and Development:

• Development of new value-added products.

• Process improvements resulting in better yields and further improvement in Quality of Products.

Energy Conservation

Regular studies are carried out to ascertain the quantitative energy consumption patterns, variances are analysed and corrective actions taken. The Company is continuously working towards further improvements in energy consumption levels.

Health, Safety and Environment

During the period under review, medical check-up of all regular employees has been carried out. All requirements pertaining to pollution control, environmental protection and safety have been complied with. Employees have been trained to observe the guidelines relating to safety, health and environment.

Companys Philosophy on Code of Governance

Philosophy of your Company on Corporate Governance envisages the attainment of the highest levels of transparency, accountability and equity, in all facets of its operations. Your Company believes that all its operations and actions must serve the underlying goal of enhancing overall shareholder value, over a sustained period of time.

Opportunities and Threats

The surgical industry depends largely on new surgical applications and surgeries. In the last few years, the increase in the allocation of funds for such purposes has been on the increase and as such the opportunity of growth in surgical items is unlimited. However, there exists untapped potential in the nursing home sector. The Company has arrangement / understanding with various distribution markets and sell various items which are required in the nursing home market. The Company continued to mitigate the risk of this volatility by effecting payments towards our imports out of our Export Earnings as much as possible and by taking adequate cover. To negate the impact of competition, our competitors have for long been dumping their medical devices / products in the Indian market at low prices. The possibility of competitors pursuing an irrational pricing approach cannot be ruled out. This may create pressure on our margins. Sentiment-driven currency changes can also impact domestic prices and profitability. The country is expecting a normal monsoon this year, any shortfall may lead to fall in the rural demand thereby unfavourably impacting some patients / user segments.

Product Performance

The overall growth of business in the country has not been upto the desired levels because of restricted funding. However, in view of unrestricted imports, competition, sales and profitability of the Company has been affected.

Outlook

During the current financial year there has been a slight improvement in the market conditions resulting in an increase in despatches and satisfactory sales price realisations. It is expected that this trend will continue. Further, slow growth rate of the Indian economy has been projected and the Company expects its growth to be slow.

Risks and Concerns

Your Company has from its inception been conscious and has regularly evaluated the risks and threats that control it and converted these threats into opportunities to its best advantage. The management believes that your Companys business is subject to a number of risks. Many of the components of the regulatory regime are established or articulated by the relevant regulatory authorities, including Food and Drug Administration. The Risk Management in your Company has been functioning effectively and has been contributing to the mitigation of the risks that would have otherwise impacted our Company.

Operating and Financial Performance for the Year

The Financial Statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the ‘Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act. The Company remains a zero-debt company. The Company had also approached CRISIL Limited for review of its existing ratings, which had assigned CRISIL A1+ (stable) for its Non-Fund based Bank Facilities. The Companys performance about the domestic sales volumes, remained reasonable for the year on account of slight slowdown and competition experienced at domestic surgeries in medical industry. On the export business front, despite stiff competition, your company successfully exported to strategic accounts with wide range of products and thus achieved a healthy growth. By a combination of a better product mix helped by speciality products and continual improvement in the efficiency of operations the Company has managed to keep its operating margins at reasonable levels for all the four quarters, although during second half the EBIDTA levels, dropped due to slowdown, falling prices and some legacy input costs on account of our inevitable coverage of 2- 3 months.

Summary of the financial performance of the Company is presented below:

For the year ended March 31 2020 2019
Net Profit before Depreciation & Taxation 370.89 353.61
Less : Depreciation 155.39 69.43
Provision for Deferred Taxation 14.33 0.00
Provision for Taxation / Written Off 71.58 82.54
Net Profit/(Loss) 129.59 201.64
Add : Balance from Last Year 2263.20 2061.56
Prior Period Profit adjustments (74.28) 0.00
Less : Appropriation 0.00 0.00
Transfer to Reserves Profit / (Loss) carried to Balance Sheet 2318.49 2263.20

During the year under review, the Company achieved a profit before tax of Rs.129.59 lakhs as compared to Rs.201.64 lakhs in 2018 - 2019. Pursuant to the SEBI (LODR), (Amendment), Regulations, 2018, the key financial ratios viz., Debtors Turnover, Inventory Turnover, Operating Profit Margin (%), Net Profit (%) and Return on Net Worth do not exceed the threshold of 25 % or more as compared to the immediately preceding financial year.

Adequacy of Internal Controls

Your Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and that transaction are authorised, recorded and reported correctly. The Audit Committee of the Board of Directors regularly reviews the findings of the internal auditors, adequacy of internal controls, financial controls, compliance with the accounting standards, as well as recommends to the Board, the adoption of the quarterly and annual results of the Company and appointment of auditors. The Audit Committee also reviews the related party transactions, entered by the Company during each quarter. Further, the Secretarial Auditors review on periodical basis through their own systems and check list the compliances part with respect to the Companies Act, 2013 and SEBI (LODR) Regulations, 2015, as amended and other SEBI regulations as may be applicable to the Company.

Material Development in Human Resources & Industrial Relation

Significant efforts have also been made to further strengthen the Companys Performance by the Management. The employee strength of the Company as on March 31, 2020 was 281. Talented and skilled manpower is an important enabler for a Company to grow and maintain competitiveness. Human resources are considered as most important and valuable assets of your Company. Focus was kept on acquisition, retention and development of necessary skilled manpower keeping in view our current operations requirement as well as the future business expansion and growth plans, particularly the Murbad, Thane plant. Innovative incentive schemes are designed and implemented as a motivational and retention strategy. Company continues to conduct employee trainings across several functions pertaining to technical, behavioural / general, health safety and environment and ISO standards. ‘Managerial Skill Development training programs are conducted to enhance the soft skills of potential managers. A regular employee performance evaluation system is in place to evaluate the individual performances as well as determining their development needs and future potential. Your company has complied with all the regulations pertaining to Factory, Labour and other applicable laws and very cordial Industrial Relations are maintained with the employees. The Management strives to maintain a climate of openness, fairness, equality and respect for individuals leading to industrial harmony, mutual trust and teamwork. Industrial relations at the plant of the Company remained cordial during the year 2019-2020 under review.

COVID-19 - CENTENIAL Approach

Maintaining business continuity Operating at reasonably good capacity Put in place an extensive sanitation programme Employees undergo protocols and overcrowding is being avoided Monitoring of body temperature and medical/travel history of all employees As a responsible corporate citizen, Centenial extended its support to the local Murbad Manufacturers Association, Murbad, Thane, Maharashtra in the fight to save the lives of those affected and those expected to be affected by the outbreak in the state and your company has donated Rs.5.00 lakhs to Maharashtra Chief Ministers Relief Fund and donation of 500 food kits in Murbad, Thane, MAHARASHTRA to support suppression measures.

Cautionary Note

The Statements made in this report are forward-looking and are made on the basis of certain assumptions and expectations of future events. The Company cannot guarantee that these forward-looking statements will be realized, though they are set out based on anticipated results and management plans. The Companys actual results, performance or achievements are subject to risk, uncertainties and even inaccurate assumptions, which could thus differ materially from those projected in any such forward looking statements. The Board of Directors of the Company assumes no responsibility in respect of the forward-looking statements mentioned herein, which may differ in future on account of subsequent developments, events or otherwise and the Company is under no obligation to publicly update any forwardlooking statements on the basis of subsequent developments, information, future events or otherwise.

By Order of the Board of Directors

For CENTENIAL SURGICAL SUTURE LTD

Vijay MAJREKAR
Place of Signature : Mumbai, Maharashtra Managing Director
Date: August 10, 2020 DIN: 00804808