everest organics ltd Management discussions

The information is required in compliance of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and forming a part of the Boards’ Report for the year ended March 31, 2022 and has to be read in Conjunction with the Companys financial statements, which follows this Section. The management of the Company is presenting herein the overview, opportunities and threats, initiatives by the Company and overall strategy of the Company and its outlook for the future. This outlook is based on managements own assessment and it may vary due to future economic and other future developments in the country.

INDUSTRY STRUCTURE & DEVELOPMENTS:

India is the largest provider of generic drugs globally. 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. Globally, India ranks third in terms of pharmaceutical production by volume and fourteenth by value. The domestic pharmaceutical industry includes a network of 3,000 drug Companies and ~10,500 manufacturing unit.

India is a major exporter of Pharmaceuticals, with over 200 plus countries served by Indian pharma exports. India supplies over 50% of Africa’s requirement for generics, ~40% of generic demand in the US and ~25% of all medicine in the UK. India also accounts for ~60% of global vaccine demand, and is a leading supplier of DPT, BCG and Measles vaccines. 70% of WHO’s vaccines (as per the essential Immunization schedule) are sourced from India.

Drugs and Pharmaceuticals shares 5.15% of the total exports of the country in the month of April. The Average Index of Industrial Production of Manufacturing of pharmaceuticals, medicinal chemicals and botanical products in the FY 2021-22 is 221.6 and has grown by 1.3%. Indian pharma exports witnessed a growth of 103% since 2013-14, from INR 90, 415 Crores in 2013-14 to INR 1,83,422 Crores in 2021-22. Exports achieved in 2021-22 is the Pharma Sector’s best export performance ever. It is a remarkable growth with exports growing by almost $10 bn in 8 years.

India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers with a potential to steer the industry ahead to greater heights. Presently, over 80% of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

The Company was operating in the Chemical industries, mainly engaged in the manufacturing of Active Pharmaceutical Ingredients and Intermediaries. FY 2021-22 was a satisfactory year in all aspects. The Directors from time to time has always considered the proposal for diversification into the areas which would be profitable for the Company. Going ahead your Directors are expecting better industrial development in the coming years.

MARKETING & MARKET SIZE:

According to the Indian Economic Survey, 2021, the domestic market is expected to grow fix in the next decade. India’s domestic pharmaceutical market is estimated at US$ 42 billion in 2021 and likely to reach US$ 65 billion by 2024 and further expand to reach ~US$120-130 billion by 2030.

India’s biotechnology industry comprises biopharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics. The Indian biotechnology industry was valued at US$ 70.2 billion in 2020 and is expected to reach US$ 150 billion by 2025.

As of August 2021, CARE Ratings expect Indias pharmaceutical business to develop at an annual rate of ~11% over the next two years to reach more than US$ 60 billion in value.

In the global pharmaceuticals sector, India is a significant and rising player. India is the worlds largest supplier of generic medications, accounting for 20% of the worldwide supply by volume and supplying about 60% of the global vaccination demand. The Indian pharmaceutical sector is worth US$ 42 billion and ranks 3rd in terms of volume and 13th in terms of value worldwide.

In August 2021, the Indian pharmaceutical market increased at 17.7% annually, up from 13.7% in July 2020. According to India Ratings & Research, the Indian pharmaceutical market revenue is expected to be over 12% Y-o-Y in FY22.

OUTLOOK: Global API Sector

The global Active Pharmaceutical Ingredient (API) market reached a value of US$ 200.6 Billion in 2020. Looking forward, the publisher expects the global active pharmaceutical ingredients (API) market to exhibit moderate growth during the forecast period (2021-2026).

Active Pharmaceutical Ingredient (API), is the term that is used to refer to the biologically active component of a drug (e.g., tablet, capsule). A drug is usually composed of several components. The API represents the primary ingredient. Other ingredients are commonly known as "excipients". Sometimes a drug can contain several APIs and its effect on a patient depends on the dosage prescribed and can vary from person to person. In combination therapies, two or more than two active ingredients are used to treat different symptoms in different ways. Stringent quality control is a mandate when it comes to the manufacturing of drugs as the API represents the main component considered while making the prescription.

Pharmaceutical manufacturing occurs in two general steps. In the first step, manufacturers convert raw materials into APIs. The second step involves creating the final formulation by mixing APIs and excipients into tablets, capsules, solutions, etc. and finally packaging the drug for the end users. Manufacturers either sell APIs in the open market (also known as the merchant market) or use them as inputs to make their final formulations. The global API market is extremely competitive with a number of large and small manufacturers. Firms that engage in API manufacturing generally specialize and target their manufacturing based on a combination of the firms in-house skills and market opportunities. Catalyzed by lower costs, API manufacturing has gradually been shifting from the historical leaders in Western countries to manufacturers based in India and China.

The global demand of APIs is currently exhibiting strong growth. One of the major drivers of this market is the rising number of blockbuster patent expiries creating a significant opportunity for generic APIs. Moreover, there has been a strong demand for APIs for biologicals. The global market for biologicals is currently exhibiting strong growth catalyzed by their high potency and ability to treat diseases beyond the scope of small molecule drugs. This is creating a strong demand for APIs for branded biological drugs and their biosimilar versions. Other factors catalyzing the global demand of APIs include ageing population, rising expenditures on healthcare, increasing prevalence of lifestyle diseases, etc.

INVESTMENTS & RECENT DEVELOPMENTS:

The Union Cabinet has given its nod for the amendment of existing Foreign Direct Investment (FDI) policy in the pharmaceutical sector in order to allow FDI up to 100% under the automatic route for manufacturing of medical devices subject to certain conditions.

The Indian drugs and pharmaceuticals sector received cumulative FDIs worth US$ 19.19 billion between April 2000 and December 2021.

Some of the recent developments/investments in the Indian pharmaceutical sector are as follows:

• In March 2022, Themis Medicare Ltd. (Themis), announced the approval of its antiviral drug VIRALEX by the Drug Controller General of India (DCGI).

• In November 2021, US-based Akston Biosciences announced that it would start the clinical trial of its second generation COVID-19 vaccine ‘AKS-452’ in India soon.

• In October 2021, AstraZeneca India launched a Clinical Data and Insights (CDI) division of further strengthen its global presence and manage data-related aspects of its clinical trials.

• In September 2021, the Indian government contributed US$ 4 billion to the pharmaceutical and medical industries.

• In August 2021, Glenmark collaborated with SaNOtize to introduce spray for COVID-19 treatment in India and other Asian markets.

• In August 2021, Unisa Group, an Ahmedabad-based pharmaceutical firm, signed an agreement with Lysulin Inc. (an US-based firm) to introduce Lysulin, a nutritional product for Indian consumers.

• In August 2021, Alkem Laboratories introduced Famotidine and Ibuprofen tablets to treat osteoarthritis and rheumatoid arthritis symptoms in the US.

• In July 2021, Generic Health (an Australia-based subsidiary of Lupin Limited) signed an agreement with Southern Cross Pharma Pty Ltd. (SCP). Under this deal Lupin will acquire 100% shares of SCP. The acquisition is expected to further strengthen Lupin’s foothold in Australia.

• In June 2021, Sun Pharmaceuticals acquired the patent license for Dapagliflozin from AstraZeneca. The Company will be distributing and promoting the drug under the brand name ‘Oxra’.

• In June 2021, Lupin Ltd., announced its intention to enter the digital healthcare space in India. It incorporated Lupin Digital Health Ltd., a wholly owned subsidiary, to provide a digital therapeutics platform for medical practitioners and patients in the country.

• In May 2021, Cipla launched a real-time COVID-19 detection kit ‘ViraGen’ that is based on multiplex polymerase chain reaction (PCR) technology.

• In May 2021, the Government of India invited R&D proposals on critical components and innovations in oxygen concentrators by June 15, 2021.

• In May 2021, Indian Immunologicals Ltd. (IIL) and Bharat Immunologicals and Biologicals Corporation Ltd. (BIBCOL) inked technology transfer pacts with Bharat Biotech to develop the vaccine locally to boost Indias vaccination drive. The two PSUs plan to start production of vaccines by September 2021.

• In May 2021, Eli Lilly & Company issued non-exclusive voluntary licenses to pharmaceutical Companies—Cipla Ltd., Lupin Ltd., Natco Pharma & Sun Pharmaceutical Industries Ltd.—to produce and distribute Baricitinib, a drug for treating COVID-19.

• In April 2021, the CSIR-CMERI, Durgapur, indigenously developed the technology of Oxygen Enrichment Unit (OEU). The unit can deliver medical air in the range of

15 litres per minute, with oxygen purity of >90%. It transferred the technology to MSMEs—Conquerent Control Systems Pvt. Ltd., A B Elasto Products Pvt. Ltd. and Automation Engineers, Mech Air Industries and Auto Malleable.

• In April 2021, National Pharmaceutical Pricing Authority (NPPA) fixed the price of 81 medicines including off-patent anti-diabetic drugs allowing due benefits of patent expiry to the patients.

• In February 2021, Aurobindo Pharma announced plans to procure solar power from two open access projects of NVNR Power and Infra in Hyderabad. The Company will acquire 26% share capital in both Companies with an US$ 1.5 million investment. The acquisition is expected to be completed by the end of March 2021.

• In February 2021, the Telangana government partnered with Cytiva to open a ‘Fast Trak’ lab to strengthen the biopharma industry of the state.

• In February 2021, Glenmark Pharmaceuticals Limited launched SUTIB, a generic version of Sunitinib oral capsules, for the treatment of kidney cancer in India.

• In February 2021, Natco Pharma launched Brivaracetam for the treatment of epilepsy in India.

• In February 2021, the Russian Ministry of Health allowed Glenmark Pharmaceuticals to market its novel fixed-dose combination nasal spray in Russia.

• In January 2021, the Central government announced to set up three bulk drug parks at a cost of Rs. 14,300 crore (US$ 1,957 million) to manufacture chemical compounds or active pharmaceutical ingredients (APIs) for medicines and reduce imports from China.

• PharmEasy received US$ 300 million in July 2021 from its existing investors after acquiring Thyrocare, the diagnostic firm. These funds will be utilised to continue Thyrocares acquisition process. After the transaction is completed, the online pharmacy plans to float the Company on the Indian Stock Exchange.

GOVERNMENT INITIATIVES:

Some of the initiatives taken by the Government to promote the pharmaceutical sector in India are as follows:

• In March 2022, under the Strengthening of Pharmaceutical Industry (SPI) Scheme, a total financial outlay of Rs. 500 crore (US$ 665.5 million) for the period FY 21-22 to FY 25-26 were announced.

• India could restart deliveries of COVID-19 shots to the global vaccine-sharing platform COVAX in November-December 2021 for the first time since April 2021. The World Health Organization (WHO), which co-leads COVAX, has been pushing India to resume supplies for the programme, particularly after it sent

4 million doses to neighbours and allies in October 2021.

• In November 2021, PM Mr. Narendra Modi inaugurated the first Global Innovation Summit of the pharmaceuticals sector. The summit will have 12 sessions and over 40 national and international speakers deliberating on a range of subjects including regulatory environment, funding for innovation, industry- academia collaboration and innovation infrastructure.

• In August 2021, Mr. Mansukh Mandaviya, Minister of Health and Family Welfare, announced that an additional number of pharmaceutical Companies in India are expected to commence manufacturing of anti- coronavirus vaccines by October-November 2021. This move is expected to further boost the vaccination drive across the country.

• In June 2021, Ms. Nirmala Sitharaman, Minister of Finance and Corporate Affairs, announced an additional outlay of Rs. 197,000 crore (US$ 26,578.3 million) that will be utilised over five years for the pharmaceutical PLI scheme in 13 key sectors such as active pharmaceutical ingredients, drug intermediaries and key starting materials.

• As of August 31, 2021, the PLI scheme received a good response from the industry with a total of 278 applications. This is likely to benefit 55 manufacturers.

• To achieve self-reliance and minimise import dependency in the countrys essential bulk drugs, the Department of Pharmaceuticals initiated a PLI scheme to promote domestic manufacturing by setting up greenfield plants with minimum domestic value addition in four separate Target Segments with a cumulative outlay of Rs. 6,940 crore (US$ 951.27 million) from FY21 to FY30.

• In May 2021, under Atmanirbhar Bharat 3.0, Mission COVID Suraksha was announced by the Government of India to accelerate development and production of indigenous COVID vaccines. To augment the capacity of indigenous production of Covaxin under the mission, the Department of Biotechnology, Government of India, provided financial support in the form of a grant to vaccine manufacturing facilities for enhanced production capacities, which is expected to reach >10 crore doses per month by September 2021.

• In April 2021, the Union Government decided to streamline and fast-track the regulatory system for COVID-19 vaccines that have been approved for restricted use by the US FDA, EMA, UK MHRA, PMDA Japan or those listed in the WHO Emergency Use Listing (EUL). This decision is likely to facilitate quicker access to foreign vaccines by India and encourage imports.

• In February 2021, the Punjab government announced to establish three pharma parks in the state. Of these, a pharma park has been proposed at Bathinda, spread across 1,300 acres area and project worth Rs. 1,800 crore (US$ 245.58 million). Another medical park worth Rs. 180 crore (US$ 24.56 million) has been proposed at Rajpura and the third project, a greenfield project, has been proposed at Wazirabad, Fatehgarh Sahib.

• Under Union Budget 2021-22, the Ministry of Health and Family Welfare has been allocated Rs. 73,932 crore (US$ 10.35 billion) and the Department of Health Research has been allocated Rs. 2,663 crore (US$ 365.68 billion). The government allocated Rs. 37,130 crore (US$ 5.10 billion) to the National Health Mission. PM Aatmanirbhar Swasth Bharat Yojana was allocated Rs. 64,180 crore (US$ 8.80 billion) over six years. The Ministry of AYUSH was allocated Rs. 2,970 crore (US$ 407.84 million), up from Rs. 2,122 crore (US$ 291.39 million).

Medicine spending in India is projected to grow 9-12% over the next five years, leading India to become one of the top 10 countries in terms of medicine spending.

Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers, which are on the rise.

The Indian Government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical Companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical Companies.

OPPORTUNITIES & THREATS:

The SWOT analysis of the industry reveals the position of the Indian pharmaceutical industry in respect to its internal and external environment.

a) Strengths

• Well-developed chemistry, R&D and manufacturing infrastructure with proven track record in advance chemistry capabilities, design of high-tech manufacturing facilities and regulatory compliance.

• Strong technical, finance and administrative expertise in pharma industries along with strong marketing and distribution network.

• Higher GDP growth leading to increased disposable income in the hands of general public and their positive attitude towards spending on healthcare.

• Low-cost, highly skilled set of English speaking labour force and proven track record in design of high technology manufacturing devices.

• Healthy domestic market with rising per capita expenditure. Low cost of innovation, manufacturing and operations.

• Strong focus by the Government. Adherence to global standards, high quality documentation and process understanding.

• Adequate health insurance coverage.

b) Weaknesses

• Stringent pricing regulations affecting the profitability of pharma companies .

• Lack of ability to compete with MNCs for New Drug Discovery, Research and commercialization of molecules on as worldwide basis due to lack of resources.

• Poor all-round infrastructure is a major challenge.

• Low investments in innovative R & D.

• Presence of more unorganised players versus the organized ones, resulting in an increasingly competitive environment, characterised by stiff price competition.

c) Opportunities

• Global demand for generics rising. High scope in Research & Development sector.

• Rapid OTC and generic market growth. Significant export opportunities.

• Increased penetration in the non - metro markets.

• Large demand for quality diagnostic services.

• Significant investment from MNCs.

• Public-Private Partnerships for strengthening Infrastructure.

• Opening of the health insurance sector and increase in per capita income - the growth drivers for the pharmaceutical industry.

• India, a potentially preferred global outsourcing hub for pharmaceutical products due to low cost of skilled labour.

d) Threats

• Global Competition. Narrow margin of Profits.

• Increasing Stringency on Quality.

• Increasing CGMP regulatory requirement compliances leads to more and more investments.

• Wage inflation.

• Government expanding the umbrella of the Drugs Price Control Order (DPCO).

• Other low-cost countries such as China and Israel affecting outsourcing demand for Indian pharmaceutical products

• Entry of foreign players (well equipped technology-based products) into the Indian market.

The Company is seriously contemplating for both forward and backward integration. The Company is pursuing actively assets which will add immediate value to the Company for the purpose of forward integration in palletisation in the near future along with backward integration into intermediates through partnership or as new projects.

INTERNAL CONTROL SYSTEM & THEIR ADEQUACY:

The Company has an adequate system of internal controls comprising authorization levels, supervision, checks and balance and procedures through documented policy guidelines and manuals, which provide that all transaction are authorized, recorded and reported correctly and compliance with policies and statutes are ensured. The operational managers exercise their control over business processes through operational systems, procedural manual and financial limits of authority manual, which are reviewed and updated on an ongoing basis to improve the systems and efficiency of operations. The Company place prime importance on an effective internal audit system. The Internal Control System is supplemented by internal audit, regular review by the management and well documented policies. The Company has an independent Internal Audit System to monitor the entire operations and services. The top management and Audit Committee of the Board review the findings of the Internal Auditor and takes remedial actions accordingly.

RISKS & CONCERN:

The pharmaceutical industry faces challenges in protecting intellectual property and brand reputation while meeting strict compliance needs. Environmental sector is another major concern as drugs are of high value and sensitive to environmental interaction. There is a need to make sure that pharmaceutical products are handled safely. Active Pharmaceutical Ingredients (APIs) can enter the natural environment during manufacture, use and / or disposal, and consequently public concern about their potential adverse impacts in the environment is growing. Owing to lockdown in the first quarter of the FY 2021-22 and the current Russia-Ukraine war crises, the Company has experience impacts on the logistics thereby experiencing delays in both inbound and outbound shipments. With the ongoing Russia-Ukraine war, our business was impacted to an extent of 10% because of the increase in raw material prices with no increase in APIs sales price.

SEGMENT-WISE PERFORMANCE:

Everest Organics Limited is engage in the business of manufacturing of Active Pharmaceutical Ingredients & Intermediaries for around three decades. Currently the Company is working on capacity utilization of 80-90% for the existing product. The big capex done for the FY 2020-21 was Rs. 8 crore and capex envisaged for the FY 21-22 and thereafter every year Rs. 10.00 crore for the next 3 years (including FY 21-22).

During the FY 2021-22, the Company exported about 22% of the total sale from all over the world. There was an increase in number of client during the year; presently we have about 60 clients spread over 45 countries all over the world. We would like to reach 100 clients in 60 countries in the next three years. We have approvals for two (2) products in the regulatory market and six (6) products are under process. Two (2) products are under registration in Chine and four (4) products has been registered in Iran market.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

During the year under review, the Company has achieved a turnover of INR 2000 million as against INR 1815 million in the previous year reflecting a significant year-on-year growth of 10.19%.

During the year the Company has earned a Net Profit of INR 11.44 million as against Net Profit of INR 137.15 million in the previous year. No transfers from the profits were made to the General Reserve. The entire net profit is carried over in the Statement of Profit & Loss.

The Earning per shares (EPS) of the Company as on March 31, 2022 was INR 1.43 as against INR 17.14 in the previous year.

KEY FINANCIAL RATIOS:

In accordance with the amendments notified in the Regulation 17 of the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirement) Regulation, 2015 on May 09, 2018, the details of significant changes in the key financial ratios as compared to the immediately previous Financial Year are reported hereunder:

Particulars	As at March 31, 2022	As at March 31, 2021	Reason for change
Debtors Turnover	3.36	3.83	Note (a)
Inventory Turnover	3.65	3.57	Note (a)
Interest Coverage Ratio (Times)	1.56	6.30	Decrease in ratio during the current year as compared to the previous year is due to lower profits in the current year. The Profit before Interest and Tax was higher in the previous year (2020-21) due to increase in the profit.
Current Ratio (Times)	1.05	1.15	Note (a)
Debt-Equity Ratio (Times)	0.83	0.49	Increase in ratio on account of increase in Trade Payable without corresponding increase in equity due to low profit during the year.
Operating Profit Margin (%)	2.42%	11.31%	Decrease in ratios mainly due to a decrease in the marketing margin in the current year and increase in Inputs cost.
Net Profit Margin (%)	0.57%	7.55%	The Net Profit Margin Ratio has decreased mainly on account of lower Profit after Tax when compared to the previous year.
Return on Net Worth (%)	2.44%	29.45%

Note (a). In respect of aforesaid mentioned ratios, there is no significant change in FY 2021-22 in comparison to FY 2020-21.

BUSINESS UPDATES:

• Oseltamivir, Rivaroxaban, Pantoprazole and Fenofibrate are filed for European market.

• Omeprazole, Esomeprazole, Pantoprazole USDMF filed for US market.

• New block with 130000 Kgs will be completed by June 2022.

• Long Term Loan by Financial Credit Rating (ICRA Rating) is [ICRA] BB+(Stable) dated December 13, 2021. .

INDUSTRIAL RELATIONS & HUMAN RESOURCE DEVELOPMENT:

The focus is on capability development, performance management and employee engagement. This is expected to improve cost competitiveness through greater levels of employee participation, commitment and involvement.

The Company recognizes human resources as its biggest strength which has resulted in getting acknowledgement that the Company is the right destination where with the growth of the organization, value addition of individual employees is assured. The Company provides employee development opportunities by conducting training programs to equip the employee with upgraded skills enabling them to adapt to the contemporary technological advancements. The total number of employees as on March 31, 2022 is about 430.

CAUTIONARY STATEMENT:

Statement in this report on Management Discussion and Analysis describing the Companys objectives, projections, estimates, exceptions or predictions may be forward looking statements and are based on certain assumptions and exception of future events. Actual result could however differ materially from those express or implied. Important factors that could make a difference to the Companys operations including global and domestic demand-supply condition, finished goods process, raw material cost and availability, changes in government regulations and tax structure, economic development within India and the Countries with which the Company has Business Contracts and other factors such as litigation and industrial relations.

The Company assumes no responsibility in respect of forward looking statement herein which may undergo changes in future on the basis of subsequent developments, information and events.