1. India Healthcare Environment: Current Status and Recent Developments
The healthcare sector has emerged as one of the largest service sectors and is expected
to reach about
Rs. 15,400 billion in 2020 from Rs. 2,200 billion in 2010, at a 20% CAGR. Total Indian
health spending is conventionally estimated at a little over 4% of GDP which is largely
self-funded. India currently spends only 1.2% of its GDP which is expected to reach around
3% of GDP by 2025 on publicly funded health care. Private sector’s share in
healthcare delivery is expected to increase from 66% in 2005 to 83% by 2018. The average
investment size by private equity funds in healthcare has increased to Rs. 1.1 – 1.7
billion which was around Rs. 0.2 – 0.8 billion.
Key factors influencing growth in the healthcare sector are:
a) Growth in population: India’s population is currently just over 1.2
billion with the growth rate of 1.58%. India is predicted to have more than 1.53 billion
people by the end of 2030.
b) Growing middle class with higher purchasing power: India has huge middle
class population, which has grown rapidly from 25 million people in 1996 to 163 million
people in 2013. If the economy continues to grow fast and literacy rates keep rising,
around a third of the population (34%) is expected to join the middle class in near
future. Middle class population is rapidly acquiring the purchasing power necessary to
afford quality medicine due to an increase in disposable income. The Indian population
spent 7% of its disposable income on healthcare in 2005, this number is expected to nearly
double, to 13%, by 2025.
c) Increasing incidence of both acute and chronic diseases: Non-communicable
diseases (such as cardio vascular disease, chronic obstructive pulmonary diseases, cancer,
diabetes) account for nearly half of all deaths in India. More than 20% of Indian
population has at least one chronic disease and more than 10% have more than one chronic
disease. Early detection and effective control of these non-communicable diseases are
among policy goals of the 12th Five Year Plan.
d) Rise in insurance: Health insurance coverage will augment affordability. By
2020, nearly 650 million will enjoy health insurance coverage. Private insurance coverage
will grow by nearly 15 per cent annually till 2020. The largest impact will be seen
through government sponsored programs that are largely focused on the ‘below poverty
line’ segment, and are expected to provide coverage to nearly 380 million by 2020.
e) Government Schemes: India’s universal health plan that aims to offer
guaranteed benefits will cost an estimated Rs. 1.6 trillion over the next four years. Some
of the major initiatives taken
a. India and Sweden celebrated five years of memorandum. The cooperation in healthcare
between India and Sweden will help in filling gaps in research and innovative technology
to aid provisioning of quality healthcare.
b. Under the National Health Assurance Mission, Prime Minister Mr. Narendra Modi’s
government would provide all citizens with free drugs and diagnostic treatment, as well as
insurance cover to treat serious ailments.
c. The change in the government’s role from provider to payer has expanded the
financial risk protection coverage to the marginalized.
d. Private sector partnership through health PPPs are gradually gaining acceptance,
thereby improving access to care.
e. The significant demand supply mismatch has led to healthcare emerge as an attractive
sector for PE investments.
2. Indian Pharmaceutical Market: Key Trends
The Indian Pharmaceutical Market (IPM) is third largest in terms of volume and thirteen
largest in terms of value. The IPM is witnessing dynamic changing trends such as large
acquisitions by Indian companies, increasing investment by domestic and international
players, deeper penetration in rural markets, growth and availability of healthcare &
incentives for setting up special economic zones (SEZ’s). These trends combined with
increasing purchasing power and access to good quality medical care will continue to
propel the market to new heights. Indias pharmaceutical market is expected to touch Rs.
1925 billion in sales by 2020 from current Rs. 903 billion in 2015. IPM posted CAGR
growth of 11% during the period 2012-15. Multiple factors like high growth in
anti-infectives, respiratory, cardiovascular and pain market has resulted in recovery of
IPM growth. Indian companies continue to capture the larger share of IPM at 77%. With
three MNCs represented in the top 10 companies, the share of MNCs constituted 23% of IPM.
Acute therapies continue to dominate the market accounting for 70%. Acute and chronic
therapies registered 12% & 13% growth respectively.
The Indian Pharmaceutical market is expected to grow due to a variety of drivers, which
include:
• Indian economy is growing strongly; and will provide a conducive
macro-environment for the industry to grow in.
• The government is increasing spend on healthcare; and the Indian population is
spending an increased amount of money on healthcare as a percentage of disposable income.
• The disease profile is changing with an increase in growth of chronic disease.
• Improvements in healthcare financing due to insurance penetration and rising
disposable income levels will also contribute to driving growth in the market.
• Improved healthcare infrastructure will allow for better healthcare delivery.
3. Opportunities and Challenges 3.1 Opportunities
Currently, around 67% of India’s population, or 742 million people live in rural
areas, but rural markets contribute to only 17% of the overall market sales. This
represents a huge opportunity for pharmaceutical companies, as these markets are future
growth drivers for the industry. Growing R&D investments along with IT related
initiatives stand to transform the India pharma market by increasingly providing credible,
affordable and quality healthcare solutions to the Indian consumers.
With an estimated CAGR of 11-12% for next five year timeframe, outlook for the Indian
Pharmaceutical Market remains largely positive. The main drivers continue to be increase
in disposable income for the middle class; increase in prevalence of chronic diseases;
increase in healthcare related insurance penetration; development of healthcare
infrastructure in metros and smaller towns; and increase in healthcare spend by the
Government.
The Governments intent, increased health insurance coverage, improved healthcare
delivery and diagnostic services can help redefine the contributions of pharmaceutical
sector for a healthier India.
Tier 1 cities will continue to contribute to market growth of the pharmaceutical
sector. The increase in per capita income of Tier 2 and rural markets will provide
companies with the opportunity to extend geographical coverage and develop innovative
business models.
Patient-centric models such as Integrated Disease Management Programs, disease
awareness through the use of technology (telecom, internet) and potentially e-commerce
will enable pharmaceutical companies to capture opportunities in the Indian Pharmaceutical
Market.
3.2 Challenges, risk & concern
Lack of skilled healthcare providers and issues of availability and access to
healthcare in the lower town classes and rural areas continue to remain as challenges for
the industry. As per WHO estimates, India has just six doctors per 10,000 people. India
lags in broader measures too, most notably in health insurance – less than 20% of
Indians are covered under insurance.
The market is witnessing a margin pressure in most of the product categories due to two
main reasons: the new 643 essential medicine coming under price control and the stiff
competition from domestic players. In addition to price control of essential medicines,
uncertainties and complexities in the regulatory and Intellectual Property environment
continue to pose significant challenges to research driven global pharmaceutical companies
operating in the country. Due to lack of full clarity on the regulatory environment and
long approval lead time, launch of new innovative products is expected to be delayed in
the country. However, recently, there have been drugs approved by the regulators without
clinical trials for indications where there are limited patients and in cases of large
unmet needs. Further, Intellectual Property environment for patented products has been
witnessing a number of challenges around patent revoking, patent infringements and
compulsory licensing. It is important to provide a robust environment where research and
innovation is recognised and rewarded.
Counterfeiting is another serious concern of the Pharmaceutical Industry and the public
at large. The Company has initiated various measures to combat counterfeiting. These
include: training of distributors and pharmacists, use of innovative packaging, scrambled
images, printing and holographic foils on blisters, in shrink sleeves and on primary
cartons.
Foreign exchange rate fluctuations have adversely impacted the profitability of your
Company in 2014-15. Your Company has taken steps to mitigate the foreign exchange risk.
Your Company has a global-standard risk management program in place that meets its
specific needs of identification, assessment and monitoring of risks at different levels
and ensures mitigation of the same in an appropriate manner.
4. Business Performance
The Company has only one reportable business segment which is
"Pharmaceuticals".
Your Company operates in the following therapeutic areas: Dermatology, Hepatitis,
Oncology and Anti-Infectives. The Company’s product portfolio is balanced and
provides therapies for both acute and chronic health conditions. Company introduced a new
brand ELOSALIC in the dermatology portfolio. In Dermatology, key brands such as
Quadriderm, Dipsalic and Elocon continued to be in leadership positions (amongst Top 5
brands) in their respective market segments. As per IMS (MAT 2015 March) data, Quadriderm,
Dipsalic and Elocon are ranked No. 2, No. 2 and No. 3 brands respectively in their
competing therapy areas.
In Specialty Care (Hepatitis and Oncology), your Companys key brand under Oncology
Temodal continue to maintain market leadership in its segments, however in Hepatitis,
ViraferonPeg has faced change in standard of care under HCV treatment and stiff generic
competition in the therapy. On account of effective implementation of ‘Project
Sambhav’ in Punjab, Viraferon Peg was ranked the No. 1 pharmaceutical brand in
the state for 2014. However changing trend in Hepatitis treatment regimen will have a
negative impact on your companies hepatitis business.
5. Internal Control System and its Adequacy
Compliance with integrity is a core value of your Company. Your Company has been
following a comprehensive internal control system and has well defined Standard Operating
Procedures and Policies for identifying and mitigating the risk across various divisions
within the Company. Company’s funds/expenses are effectively regulated by appropriate
Grants of Authority Policy. The Grant of Authority based execution management ensures
compliance with the aforesaid procedures and policies on an ongoing basis in the
operations of your Company.
Your Company has designed such internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and preparation of
the financial statements for external purposes in accordance with Generally Accepted
Accounting Principles (GAAP) in India.
An external agency conducts the Internal Audit Program for the Company, covering all
key areas on periodic basis in order to assess and ensure conformity to applicable laws,
Accounting Standards, Companies Policies and protection of the Company’s assets and
interest. This audit is supplemented by an internal global audit which is conducted twice
a year as part of the internal compliance program. There were no deficiencies in the
design or operation of internal controls, that could adversely affect the Company’s
ability to record, process, summarize and report financial data, and there have been no
material weaknesses in internal controls over financial reporting including any corrective
actions with regard to deficiencies. There were no significant changes in internal
controls during the year. Further the Audit Committee appointed by Board of Directors of
your Company, reviews the findings and recommendations of internal auditors as well as the
auditors appointed by the Members. It also reviews the action plan to identify and address
areas of improvement, thereby focusing on strengthening the system.
6. Material Development in Human Resources/Industrial Relations
One of the Companys strategic priorities is to deliver a strong culture with engaged
and empowered employees by developing diverse talent and fostering innovative thinking.
We continued to strengthen our efforts towards development & well-being of our
employees. A number of customized interventions were designed to cater to development
needs across various levels. Employees have undergone the following training programs:
• Connect to Learn: Web based training to enhance the capability of
frontline sales team. It helps us in developing our employees and making them more
effective in doctor’s clinics. Based on needs of certain teams, we have taken
Business Unit specific modules also like Excel training for Oncology team, Session on
"Power of saving lives" for Virology team, etc.
• Learn to WIN: Developing First Line Managers to take up the next level
roles. Focus is not only in developing our Business Managers but it also improves the
retention rate.
• Spandan: A regular connect program by HR to reach out to newly joined
employees so as to ensure that they are assimilating well into the culture of your
Company.
• LEAD (Learning Enabler Accelerate Development) program – A full year
future leaders development plan for key talent to groom them into leaders by focusing on
specific skills.
• EMFL (Emerging Markets Futures Leaders) program – A program for
select senior leaders from emerging markets to help them train for next leadership level
roles. The program is conducted in association with Harvard University.
• HR for Non HR: Training for managers to enhance their people management
skills. It also helps them in becoming more effective in managing Industrial Relations.
Top performers were recognized through Reward & Recognition program for the third
consecutive year. The top performers from Sales division have also been recognized and
provided with a sponsored "Mini MBA" program from IIM Lucknow. For some of the
exemplary performance in support function, employees were also felicitated in Town hall
meetings with both cash and non-cash rewards. Starting from the year 2012, your Company
has rolled out Summer Internship Program. Through this program, your Company has further
strengthened relations with various management institutes and universities. The program
continued for second year, wherein we had management students who worked on live industry
projects during their summer internship.
Employee engagement was also ensured via periodic communications and connect with
employees. Apart from the Company town hall meetings, connect was established with
employees on periodic basis through tele-calls and personal meetings. The focus of these
sessions was to keep all colleagues informed about key developments and strategy, and
enhance their participation in driving growth of the organisation. Employee voice survey
is conducted at regular intervals to collect feedback for the betterment of the
organization.
The total number of employees as on March 31, 2015 was 321.
7. Financial Condition
Sources of Funds:
a. Share Capital
At present, we have only one class of shares – equity shares at par value of Rs.
10/- each. Our authorized share capital is Rs. 50 million, divided into 5 million equity
shares of Rs. 10/- each. The issued, subscribed and paid-up share capital stood at Rs. 39
million as at March 31, 2015. b. Reserves & Surplus Capital Reserve: The capital
reserves as at March 31, 2015 is Rs. 0.05 million same as the previous year.
Securities Premium Reserve:
• The balance as at March 31, 2015 is Rs. 395 million, same as the previous year.
General Reserve:
• No transfer of general reserve during the year. The balance as at March, 2015
amounted to Rs. 684 million (previous year Rs. 684 million).
Surplus
• The balance retained in the Surplus as at March 31, 2015 amounts to Rs. 380
million after providing the final dividend for the year of Rs. 5.85 million and dividend
tax of Rs. 1.17 million.
Shareholder’s Fund
• The total shareholder’s funds increased to Rs. 1,498 million as at March
31, 2015 from Rs. 1,482 million as at March 31, 2014.
Application of Funds:
a. Fixed Assets Additions to Gross Block
During the year, we capitalized Rs. 0.3 million to our gross block comprising
investment in office equipment.
Deductions to Gross Block
During the year, we deducted Rs. 3.4 million from the gross block on disposal of
various assets. b. Deferred Tax Assets
The deferred tax assets as at March 31, 2015 amount to Rs. 61.9 million as against Rs.
46.7 million during the previous year.
Deferred tax assets primarily comprise deferred taxes on fixed assets, employees’
benefit accruals, trade receivables and other provisions which are not tax-deductible in
the current year. c. Trade Receivables Your Company sells in cash to the trade
customers. Credit is extended to the institutional customers. Trade receivables amounted
to Rs. 202.1 million (net of provision for doubtful debts amounting to Rs. 7.5 million) as
at March 31, 2015 compared to Rs. 31.8 million (net of provision for doubtful debts
amounting to Rs. 8.7 million) as at March 31, 2014. The Days Sales Outstanding was 34 days
in the current year. d. Cash and Cash Equivalents Our treasury policy calls for investing
cash surplus in deposits with highly rated scheduled banks and financial institutions.
e. Loans and Advances and Other Non-Current Assets
Long Term Loans and Advances and Other Non-Current Assets in Rs. Million
| Particulars |
2014-15 |
2013-14 |
| Security Deposits |
57.0 |
53.9 |
| Other Deposits |
11.4 |
12.0 |
| Advance recoverable in cash |
1.8 |
1.8 |
| Current Taxation (Net of Provision) |
267.0 |
205.3 |
| Margin Money & Accrued Interest |
10.5 |
8.9 |
| Total |
347.7 |
281.9 |
Security deposits amount to deposits with the government institutions towards earnest
money deposit, deposit with sales tax authorities and rental deposits.
Short Term Loans and Advances in Rs. Million
| Particulars |
2014-15 |
2013-14 |
| Advance recoverable in cash |
50.8 |
19.7 |
| MAT Credit Entitlement |
— |
6.1 |
| Security Deposits |
3.7 |
1.4 |
| Total |
54.5 |
27.2 |
Advance recoverable represents advances to vendors, prepaid expenses and advances to
employees. f. Liabilities Current Liabilities and Trade Payables in Rs. Million
| Particulars |
2014-15 |
2013-14 |
| Trade Payables |
221.7 |
465.2 |
| Statutory Dues |
29.2 |
16.9 |
| Employee Benefits Payable |
23.7 |
27.0 |
| Advance from Customers |
30.8 |
4.4 |
| Unpaid Dividends |
0.6 |
0.7 |
| Total |
306.0 |
514.2 |
Employee benefits payable includes accrual for leave, gratuity and provision for
incentives payable to employees. Unpaid dividend represents dividends paid, but not
en-cashed by the shareholders, and are represented by a bank balance of an equivalent
amount. There are no amounts due for payment to the Investor Education and Protection
Funds under Section 124 and 125 of the Act as at March 31, 2015. g. Provisions Short Term
Provision in Rs. Million
| Particulars |
2014-15 |
2013-14 |
| Provision for Employee Benefits |
16.8 |
6.1 |
| Proposed Dividend |
5.8 |
7.8 |
| Tax on Proposed Dividend |
1.2 |
1.3 |
| Provision of Non-Sellable Returns |
29.5 |
15.2 |
| Total |
53.3 |
30.4 |
Proposed dividend represents the final dividend recommended. On approval by our
Members, this will be paid after the Annual General Meeting. Employee benefits represent
the provision for unavailed leaves valued on an actuarial basis.
8. Operational Performance
Your Company recorded sales of Rs. 2,171 million and grew by 1% (Annualized Growth)
during the year ended March 31, 2015 compared to the comparable period of twelve months of
the previous year. The growth for the year was 1%, excluding the impact of relinquishment
of rights of Alaspan, Tinaderm and Polaramine. During the year ended March 31, 2015 growth
has been achieved in key brands viz., Quadriderm, Elocon, Noxafil and Dipsalic.
Your Company has initiated several actions to accelerate growth, the result of these
new initiatives should be visible in years to come. Your Company has identified
geographical expansion, improving market access and accelerated public market initiatives
as key business drivers.
Your Company is also planning to launch new products and some brands for life cycle
management of existing products. Your Company’s focus is also on robust expense
management and improving cost efficiencies.
Your Company has earned a profit of Rs. 23.1 million during the year ended March 31,
2015 as compared to Rs. 44.7 million during the fifteen month period. The profits were
impacted due to relinquishment of exclusive marketing rights for Alaspan, Tinaderm &
Polaramine and reduction in Viraferon price due to extreme market competition.
9. Value Added by the Company
Contribution to the Government as Taxes & Other Levies
During the fifteen month period ended March 31, 2015 the Company has contributed Rs.
330 million to the government by way of taxes and other levies as under: in Rs. Million
| Particulars |
2014-15 |
| Income Tax |
95.6 |
| Other Taxes and levies |
232.8 |
| Tax on Dividend |
1.3 |
| Total |
329.7 |
Distribution to Shareholders as Divided
The Company has proposed a final dividend of Rs. 5.9 million for the year. Payments to
Employees as Remuneration
The total remuneration paid to the employees including benefits during the fifteen
month period amounts to Rs. 433 Million.
Retention by the Company
The Company has retained Rs. 16.1 Million from the profit of the current year.
10. Outlook
The Management is cautiously optimistic about 2015-2016 and is taking various steps to
improve operational performance of the Company. The Company shall focus on driving growth
of existing products, launching new products and line extensions, strong expense
management and prioritizing its investment for better operational performance in
2015-2016. Barring unforeseen developments, the Management is hopeful of demonstrating
improvement in performance of your Company.
Several of the new initiatives such as geographic expansion, investments for new
product launches, promotional expenses for existing key products necessitating incremental
investments and outlays referred to above are designed to make your Company fit for
growth, in the medium and long term.
11. Delisting of equity shares of the Company from BSE Limited:
On April 25, 2014, the Board of Directors of Fulford (India) Limited ("Target
Company") received a letter from Dashtag, the promoter of the Target Company ("Acquirer")
notifying the Acquirer’s intention to make a voluntary delisting offer ("Delisting
Offer") to the public shareholders of the Target Company in accordance with the
Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 ("Delisting
Regulations") to acquire 976,763 equity shares, representing 25.05% of the paid
up equity share capital of the Target Company held by the public shareholders of the
Target Company ("Public Shareholders") and consequently delist the equity shares
of the Target Company from BSE Limited.
The Board of Directors of the Target Company approved the Delisting Offer on April 26,
2014. It was also decided to seek the approval of the members of the Target Company for
Delisting Offer through Postal Ballot in terms of Delisting Regulations. The said Postal
Ballot Resolution was passed during previous year pursuant to Section 110 of the Companies
Act, 2013, and all other applicable provisions, if any, read with applicable rules framed
under the Companies Act, 2013 relating to passing of resolution by postal ballot and
Regulation 8(1)(b) of the Securities and Exchange Board of India (Delisting of Equity
Shares) Regulations, 2009 or any other applicable regulation of Delisting Regulations, as
amended from time to time. The said Special Resolution was approved by the members on June
20, 2014. Subsequent to that all the regulatory approval were obtained during previous
financial year in this regard.
12. Acknowledgement
The Directors wish to place on record their appreciation of the contribution made by
the employees at all levels and for their dedication and commitment to the Company
throughout the year. The Directors would also like to record their thanks to Merck &
Co., Inc., Kenilworth, N.J., U.S.A., the Company’s shareholders, bankers, medical
professionals, hospitals, vendors, distributors, pharmacists and all customers for their
valuable support and co-operation.
For and on behalf of the Board of Directors
Ajit Dangi
Chairman
DIN: 02270088 Mumbai, May 25, 2015
References
1. World Bank 2014 data
2. Planning Commission Review of the Steering Committee on Health for the 12th Five
Year Plan
3. IBEF update on Indian Healthcare sector (March 2014) – www.Ibef.org
4. PwC CII Pharma Summit Report 2014
5. Deloitte Report – Healthcare Outlook India 2015
6. IMS
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