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 31,2021 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 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent 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.

Indian drugs are exported to more than 200 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. It is expected to expand even further in the coming years. The Indian pharmaceutical exports, including bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgical, reached US$ 24.44 billion in FY21.

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 per cent 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. Financial Year 2020-21 was an extraordinary 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 3x in the next decade. Indias 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.

Indias medical devices market stood at US$ 10.36 billion in FY20. The market is expected to increase at a CAGR of 37% from 2020 to 2025 to reach US$ 50 billion.

‘Pharma Vision 2020 by the Governments Department of Pharmaceuticals aims to make India a major hub for end-to-end drug discovery. The Indian drugs and pharmaceuticals sector has received cumulative FDI inflows worth US$ 17.75 billion between April 2000 and December 2020.

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.

Indias biotechnology industry comprising biopharmaceuticals, bio-services, bio-agriculture, bio-industry, and bioinformatics. The Indian biotechology industry was valued at US$64 billion in 2019 and is expected to reach US$150 billion by 2025.

Indias drugs and pharmaceuticals exports stood at US$ 24.44 billion in FY21.

OUTLOOK: Global API Sector

The global Active Pharmaceutical Ingredient (API) market reached a value of US$ 200.6 Billion in 2020. The global demand of APIs is currently exhibiting string growth. Medicines prescribed in the US and Europe are as likely to contain an API made in Asia as one manufactured locally. The global API supply chains extend around the world.

The Indian bulk drug industry has progressed from being perceived as an industry manufacturing simple API molecules to becoming the preferred destination for high value and complex APIs. Indias API industry is ranked the third largest in the world, and the country contributes approximately 57% of APIs to pre-qualified list of the WHO - its highly fragmented nature erodes its competitive positioning globally.

The backbone of Indian pharmaceutical industry is the bulk drugs/API industry, and in the past, a well- developed bulk drugs manufacturing sector ensured that India remained self-dependent for its intermediates and active pharmaceutical ingredients (APIs). However, over the past two decades, Indias reliance has grown for imports of low-cost intermediates and APIs. Over-dependence on imports has increased the threat to the nations health security as some of these APIs are crucial to mitigate Indias growing disease burden categories, such as cardiovascular diseases, Diabetes and Tuberculosis. The import of APIs has risen at a CAGR of 8.3% from 2012 to 2019 and the bulk drug import reached a value of US$ 249 billion in 2019. Currently, India imports nearly 68% of API, by value, from China. The latter is also a single supplier for many of the critical intermediaries and APIs including high-burden disease categories.

More recently, the coronavirus related supply chain interruptions have further highlighted the vulnerabilities in the drug supply chain. Hence, there is an urgent need to improve Indias self-sufficiency and boost domestic manufacturing to achieve global leadership.

INVESTMENTS AND 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 per cent under the automatic route for manufacturing of medical devices subject to certain conditions.

The drugs and pharmaceuticals sector attracted cumulative FDI inflow worth US$ 17.75 billion between April 2000 and December 2020 according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

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

> In May 2021, the Government of India invited R&D proposals on critical components and innovations in oxygen concentrators by June 14, 2021.

> In May 2021, Indian Immunologicals Ltd. (IIL) and Bharat Immunologicals and Biologicals Corporation (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 milion investment. The acquisition is expected to be completed by the end of the 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 vrsion of Sunitinib oral capsules, for the treatment of kidney cancer in India.

> In February 2021, Natco Pharm launched Brivaracetam for the treatment of epilepsy in India.

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

> In January 2021, the Central Government announced to set up three bulk drug at a cost of Rs. 14,300 crore (US$ 1,975 million) to manufacture chemical compounds or active pharmaceutical ingredients (APIs) for medicines and reduce imports from China.

GOVERNMENT INITIATIVES:

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

> To achieve self-reliance and minimize import dependency in the countrys essential bulk drugs, the Department of Pharmaceuticals initiated as 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 vaccine 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 acers area and project worth ~Rs. 1,800 crore (US$ 245.58 milliom). 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 million). 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 per cent 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, antidepressants 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 AND 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 also actively perusing assets/stress-assets which will add immediately value to the Companys motto. The Company is determined to have a forward integration into palletisation and lyophilisation in near future along with backward integration in intermediates through acquisition or new exposition projects.

INTERNAL CONTROL SYSTEM AND 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 AND 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 various countries, the Company has experience impact on the logistics and thereby experienced occasional delays in both inbound and outbound shipments. After border tension with china, our business has been impacted to an extent of 10-15% because of stricter monitoring by the Indian Government authorities on imports from China and export to China.

SEGMENT-WISE PERFORMANCE:

Everest Organics Limited is engage in the business of manufacturing of Active Pharmaceutical Ingredients & Intermediaries since past two and half decades. Currently the Company is working on capacity utilization of 8090% 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 2020-21, the Company exported about 25% of the total sale from all over the world. The operating margin of the Company is likely to touch 15% in the ensuing years; the increase in operating margin was because of enhanced capacity utilization and enhanced cost control measures. There was an increase in number of client during the year; presently we have about 60 customers 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 already registered one product in China and two products in other regulated market.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

During the year under review, the Company has achieved a turnover of INR 1815 million as against INR 1672 million in the previous year reflecting a significant year-on-year growth of 8.55%.

During the year the Company has earned a Net Profit of INR 137 million as against Net Profit of INR 108 million in the previous year, registering a growth in Profit-after-tax (PAT) of 26.85%. The Company has made a provision of INR 35 million for Tax Expenses. 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, 2021 was INR 17.14 as against INR 13.62 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, 2021 As at March 31, 2020 Change Reason for change
Debtors Turnover 3.83 3.93 (2.75)% -
Inventory Turnover 3.57 4.21 (15.10)% -
Interest Coverage Ratio 7.34 6.04 21.52% -
Current Ratio 1.15 1.07 7.89% -
Debt-Equity Ratio 0.48 0.52 5.93% -
Operating Profit Margin (%) 11.24% 10.39% 8.18% -
Net Profit Margin (%) 7.51% 6.46% 16.25% -
Return on Net Worth (%) 29.45% 31.86% (7.57)% -

BUSINESS UPDATES:

> Osaltamivir CEP is filed for European market sales.

> Remdesivir and Posaconazole APIs are developed and commercialized as part of COVID-19 treatments.

> New block with capacity improvement of 100000 Kgs will be completed by January 2022 giving room for new products to be commercialized.

> Long Term Loan by Financial Credit Rating (Brickwork Rating) is BWR BBB-/Stable dated December 03, 2020.

INDUSTRIAL RELATIONS AND 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 31,2021 is about 417.

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.