Gujarat Terce Laboratories Ltd Management Discussions

A Commentary on the Economy

Global Economy: Hints of optimism and hope were observed as the global economy recorded a GDP growth of 3.2% (as per IMF) despite the uncertainties encountered in CY22.

The recovery of the global economy is expected to remain on track as Asia is highlighted as the harbinger of growth (contributing 70% of global growth in 2023), thus, resulting in a surge of growth across the region, unlike the somber context of global demand.

Trade in goods and services has shown positive statistics as reported by UNCTAD: Trade in goods grew 10% from last year to approximately US$25 trillion due to higher energy prices, and services shot up by 15% to a record US$7 trillion.

The global economy plunged as the Silicon Valley Bank and Credit Suisse collapsed in close succession during March 2023. However, the silver lining of the banking turmoil is that it will help slow aggregate activity as banks curtail lending. This should, therefore, partially mitigate the need for further monetary tightening to curb inflation which was registered at 8.7% in 2022 and is expected to decline to 7% in 2023.

A fall of 7% of the US dollar between November 2022 and February 2023 could increase demand for goods since dollars dominate most trade.

Tensions escalating worldwide might cause an economic slowdown as IMF forecasts growth to fall from 3.4% in 2022 to 2.8% in 2023. The upside amidst the gloom is the worlds onset of the path to sustainability, with demand spurring for environmentally sustainable goods, thus decelerating the need for high carbon content or fossil fuels.

Indian Economy: FY23 witnessed considerable disruptions due to the pandemic-induced contraction, geopolitical tensions and inflation, which recorded a downward trend in the world economy. Despite the turmoil, India soared steadily, recording real GDP of 7.2% for FY23.

India conducted the largest vaccination drive involving over 2 billion doses, saving 3.4 million lives, and it yielded a positive economic impact by preventing a loss of US$18.3 billion, according to a report by Stanford University.

The countrys robust economic growth was underpinned by strong investment activity enabled by the Governments increased capex push to 2.5% of the GDP in FY22 compared to the long-term average of 1.7% of GDP (FY09 to FY20). With impetus placed on a Capex-led growth strategy, it will enable India to keep the growth-interest rate dierential positive, leading to a sustainable debt to GDP in the medium run.

Private final consumption expenditure as a share of GDP FY23 was significantly high – possibly the highest since FY15, which boosted production activity and enhanced capacity utilisation across all sectors.

With a robust annual growth rate of 4.6% over the last six years, the agriculture sector has been able to contribute towards the overall growth of the economy and food security while the industrial sector showed a rise of 3.7% of the overall Gross Value Added (GVA) during the first half of FY23.

A surge in exports was witnessed at 13.84% during FY23, supported by the rupees depreciation against the dollar.

The economys resurgence was also backed by GST, which has stabilised to become a vital source of revenue for the Government, with its collection increasing at 24.8% YoY basis. The collection of indirect taxes grew by 14% YoY in FY23, surpassing the required rate of 3.5%, thus achieving the full-year target.

Retail inflation peaked at 7.8% in April 2022. It was controlled by RBIs monetary tightening cycle, which led to its decline to less than 6% in March 2023 - within RBIs tolerance limits.

The economy is steadily getting positioned to tread the pre-pandemic growth path as the Economic Survey 2022-23 highlighted that India has recovered from the pandemic and is expected to register a growth rate of 6-6.5% in FY24.

Global Pharma Industry: During early 2020, the Covid-19 pandemic got the world into a spiral and established clarity about the fact that without new therapies, particularly vaccines, an unending cycle of lockdowns and cycles would persist globally. Consequently, pharmaceutical companies came into the limelight and were compelled to provide results quickly, gradually accelerating their growth globally. Today, it is one of the fastest-growing industries in the world, with a CAGR of 5.70%. Its revenue is projected to reach US$1,163.00bn in 2023.

The rise in chronic diseases and a steady increase in the geriatric population across the globe susceptible to serious ailments is anticipated to fuel the expansion of the pharmaceutical sector worldwide. Increased use of personalised medicines is also expected to contribute to the industrys growth. Oncology Drugs account for the largest segment in the pharmaceutical industry, with a projected volume of US$202.30bn in 2023.

The global generics market was valued at USD 439.37 billion in 2022 and is projected to hit around USD 670.82 billion by 2030, growing at a CAGR of

5.4%. Further, due to a rise in chronic diseases and increased clinical trials globally, the global formulation development market is expected to garner US$51,901.3 Million in revenue and rise at a CAGR of 9.0% during the 2022-2031 time frame.

Indian Pharma Industry: As the frontrunner in producing cost-eective and quality-controlled generic drugs, India supplies around 20% of the global pharmaceutical demand in volume. It is currently ranked third in pharmaceutical production by volume after evolving into a thriving industry growing at a CAGR of 9.43% in the past nine years.

The country is backed by the branded generics market and the domestic players who have established their niche through early investments and nascent formulation development capabilities, contributing to the industrys growth and recognition. The Pharma sector currently contributes around 1.72% of the countrys GDP.

One of the greatest success stories in medicine is the accessibility to aordable HIV treatment from India. India is one of the biggest suppliers of low-cost vaccines in the world.

Owing to the low price and high quality, Indian medicines are preferred worldwide, rightly making the country the ‘Pharmacy of the World.

Further, Foreign Direct Investment (FDI) flows into the Pharma Industry have quadrupled, from US$180 million in FY19 to US$699 million in FY22. Carrying forward this growth momentum, drug and pharmaceutical exports during April-October 2022 was 22% higher than the corresponding pre-pandemic period of FY20.

The eorts put in by the

Government to boost this sector are evident through schemes like Pradhan Mantri Bhartiya Jan Aushadhi Kendras (PMBJKs), which targets to increase the number of PMBJKs to 10,500 by the end of March 2025, its product basket comprising of 1,451 drugs and 240 surgical instruments. Further, The Ministrys scheme "Strengthening of Pharmaceutical Industry (SPI)," with a total financial outlay of US$60.9 million (C500 crore), extends support required to existing pharma clusters and MSMEs across the country to improve their productivity, quality and sustainability.

The market size of Indias pharmaceutical industry is anticipated to reach US$65 billion by 2024 and US$130 billion by 2030. The government data states that this industry is worth approximately US$50 billion, with over US$25 billion of the value coming from exports.

Evolving Trends

M&A: The Indian pharmaceutical, healthcare and biotech sector has been attracting increasing investor interest for quite some time. Foreign investment during the first six months of 2022 was US$699 million, as against US$559 million during the same period in 2021. Moreover, the Department of Pharmaceuticals approved 21 FDI proposals worth C46.8 billion for brownfield pharmaceutical projects during the first nine months of 2022.

Proactive Quality Management System: The Government had earlier implemented a comprehensive traceability system known as Drug Authentication & Verification Application (DAVA) for both export and domestic markets 2015. With the recent rise in inferior quality formulations from India, pharma companies must significantly strengthen their self-monitoring systems recognising their moral responsibility.

Precision Medicine: Precision medicine emerged from the concept of personalisation and customisation of medical care. The most critical component is to diagnose and treat each patient individually. Precision medicine oers real-time insights into how a specific patients body responds to pharmaceuticals by combining data management, data privacy, and data analysis through Machine Learning. This knowledge is supposed to improve advanced clinical manufacturing procedures to prepare the needed dosage depending on age, comorbidities, and other clinical parameters.

Tech Adoption: The modern pharmaceutical and healthcare industries are undergoing a massive change owing to the adoption of advanced technologies. Critical pharma business trends include artificial intelligence (AI), data analytics, system biotechnology, curative medicines, gene editing, bioprinting and blockchain.

Growth Opportunities

Research & Development: The Union Budget 2023 highlights R&D as a priority for the pharmaceutical industry and has presented pharma research innovation programs through centers of excellence. The Government has implemented steps to protect intellectual property rights and build a more transparent regulatory environment, which should encourage more investment in R&D. Indian CROs (Contract Research Organisations), oering customised services with a considerable cost advantage, will make the country highly profitable for outsourcing. An estimated investment of US$419.2 million in R&D will be witnessed in 2023.

Fostering Collaborations: During the pandemic, collaborations between academia, Government and industry resulted in an eective strategy for advancing research projects. Continuous communication and coordination between corporate leaders and government ocials proved essential during the pandemic and, thus, should remain so in the future.

Government initiatives

Strengthening Pharmaceutical Industry (SPI): Under the Scheme for Strengthening Pharmaceutical Industry (SPI), it addresses the need for Pharma clusters and MSMEs to improve their productivity, quality and sustainability. The scheme aims to foster resilience and future readiness in the existing infrastructure facilities to make India a global leader in the Pharma Sector. The sub-schemes under SPI include:

Assistance to Pharmaceutical Industry for Common Facilities (APICF)	Pharmaceutical Technology Upgradation Assistance Scheme (PTUAS)	Pharmaceutical & Medical Devices Promotion and Development Scheme (PMPDS)
It aims to increase the existing pharmaceutical clusters capacity for long-term expansion.	Its goal is to aid the Micro, Small and Medium Enterprises (MSMEs) to help achieve	Its motive is to bring experts together from academia, industry, and policy to exchange
	compliance with national and international regulatory standards.	knowledge and experience for the betterment of the pharmaceutical and medical device industries.

 

Union Budget 2022-23	Union Budget 2023-24
C86,200 crore has been allocated to the Ministry of Health & Family Welfare.	The allocation to the Ministry of Health & Family Welfare was C89,155 crore.
The Government will promote thematic funds for the sunrise sector, like Digital Economy Pharma; the Governments share would be 20%. Tax breaks and incentives for private healthcare facilities in Tier-III, Tier-IV cities and villages have been announced.	An allocation of C2,980 crore was made to The Department of Health Research, out of which the Indian Council of Medical Research (ICMR) received C2,360 crore with impetus on establishing ICMR labs to promote research and innovation.
The National Digital Health Ecosystem was announced, an open forum consisting of registries of health providers & facilities, universal access to health facilities and unique health identities.	To attain the vision of "Make AI in India and Make AI work for India," three Centres of Excellence for Artificial Intelligence will be set up in top educational institutions.
The 35% yearly increase in budgetary support to capital expenditure could encourage	The AYUSH ministry received C3,647 crore, an increased allocation of 28% compared to FY23.
building of new hospitals and other medical facilities. PMSSY was allocated C10,000 crore, 43% higher	The Ministry has set aside C6,835 crore to establish 22 new All India Institute of Medical Sciences (AIIMS).
than last year, to boost medical education and set up AIIMS infrastructure.	The establishment of 157 new medical colleges has been announced, which will help bridge the gap in the number of nurses required per bed. A mission for eliminating sickle cell anemia by 2047 has been announced, which will allow universal screening of 7 crore people between 0 and 40 years in aected tribal areas.

Ayurvedic Medicine: As the prevalence of medical disorders and health-conscious mindset among consumers increases, people constantly seek a safe and healthy alternative to synthetic chemicals, bolstering the market for ayurvedic medicine. These medicines use herbal supplements that help restore body balance by addressing various health concerns without causing any side eects. The Indian ayurvedic products market size reached INR 626 billion in 2022. Further, the estimates presented by the IMARC Group suggest that the market will reach INR 1,824 billion by 2028, exhibiting a growth rate (CAGR) of 19.3% during 2023-2028.

Respiratory Medicine:

Respiratory medicines are used to treat pulmonary diseases. Respiratory infections, increased exposure to air pollution and the growing smoking population globally are expected to augment the demand for innovative and eective treatment of respiratory diseases. An estimate suggests that the respiratory drugs market is poised to grow by US$26.95 bn during 2022-2026 progressing at a CAGR of 5.96% during the forecast period.

Gynaecology Medicine: This field focuses on womens reproductive health issues, including diagnosing and treating diseases of the female reproductive organs. A significant rise in the number of women who have ovarian cancer has been observed, which would potentially increase the demand for gynecological drugs. According to an estimate, the global gynecology drug market grew from US$26.46 bn in 2022 to US$28.09 bn in 2023 at a CAGR of 6.2%.

Antibiotics: Antibiotics refer to medicines that are among the most prescribed courses worldwide for battling bacterial infections, primarily in outpatient settings. The widespread infectious diseases, vulnerable aging population and the need for new and eective antibiotics drive the market growth.

Pain Therapy: Pain is a symptom of various injuries, infections and diseases, which can be acute or chronic. To cope with the same, a pain management plan is advised, which includes medications, injections, therapy and exercise. Revenue in the Analgesics segment amounts to US$33.16bn in 2023. The market is expected to grow annually by 6.49% (CAGR 2023-2027).

Gastroenterology: The study of diseases related to the Gastrointestinal tract (from mouth to anus) comes under the field of gastroenterology. A digestive disease may develop due to multiple factors such as fatigue, diet or smoking. Alcohol intake causes a significant risk for cancer in the Gastrointestinal (GI) tract. Approximately 40% of adults suer from GI problems that increase with age.

Nutraceutical: Nutraceutical is an umbrella term that includes products derived from food sources that oer extra health benefits along with essential nutritional value found in foods. These products are often grouped into four categories: dietary supplements, functional food, medicinal food, and pharmaceuticals. The global nutraceuticals market size was valued at US$291.33 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 9.4% from 2023 to 2030.

Gujarat Terce Laboratories Limited is an Ahmedabad-based pharmaceutical company manufacturing and marketing branded Generics. Its roots are entrenched in the founding principles of COMPASSION and EXCELLENCE.

The Company has an extensive basket of 52 Brands (135 products) with a portfolio contributing to 10 therapeutic areas. Its unwavering focus on research has enabled it to identify gaps in existing health remedies in select therapies and plug them with eective solutions.

Operational performance

It was an exciting year as the sales teams worked tirelessly in expanding the Companys marketing presence and increase revenue from its precious products. The Company deepened its presence in existing states. Besides, the Company worked on optimising its operating costs under all heads with considerable success. The Company added few good products which will allows it to increase the revenue share from chronic therapies.

Financial performance

FY23 was a mixed bag for the Company. While the topline improved over the previous year, the bottomline dropped, with the Company reporting a Net Loss for the year under review. Revenue from operations increased by 16.57% from C4013.37 lakh in FY22 to

C4678.25 lakh owing to an increase in sales volumes. This is a positive for the Company as it showcases growing acceptance of the Companys products. Inflationary headwinds prevailing through the year impacted business profitability. EBITDA dropped by 238.30% from C130.73 lakh in FY22 to C-180.80 lakh in FY23. Consequently, the Company reported a Net Loss of C167.16 lakh in FY23 profit of C87.23 lakh in FY22. And Networth dropped to C686.27 lakh as on March 31, 2023, from C853.43 lakh as on March 31, 2022. The Companys total debt stood at C727.22 lakh on March 31, 2023, against C667.1 lakh on March 31, 2022.

Significant changes, i.e., a change of 25% or more in the key financial ratios

Following the amendments notified by SEBI in Regulation 17 of the SEBI (Listing Obligation and Disclosure Requirement) Regulation, 2015 on 9th May 2018, the details of significant changes, i.e., change of 25% or more in the key financial ratios as compared to the immediately previous financial year along with detailed explanations are reported hereunder:

Internal control & its adequacy

The Company has appointed DV Shah & Associates as internal auditors. The prime objective of this audit is to test the adequacy and eectiveness of all internal control systems and suggest improvements.

The Company maintains appropriate internal control systems, including monitoring procedures, to ensure that all assets are safeguarded against unauthorised use or disposition loss. Significant issues are brought to the audit committees attention for periodical review.

The Company policies, guidelines and procedures provide adequate checks and balances to ensure all transactions are authorised, recorded and reported correctly. The Audit Committee approves and reviews audit plans for the year based on internal risk assessment. Audits are conducted on an ongoing basis, and sucient deviations are brought to the notice of the Audit Committee of the Board, following which corrective action is recommended for implementation. All these measures facilitate the timely detection of any irregularities and early remedial steps with no monetary loss.

The internal audit function is further strengthened in consultation with statutory auditors for monitoring statutory and operational issues. Adherence to statutory compliance is a key focus area for the Companys entire leadership team.

We continuously strive to integrate the entire organisation, from strategic support functions like finance, human resources, and regulatory aairs to core operations like research, manufacturing and supply chain.

We continue to build our team with quality talent and put thrust on providing continuous training to be competitive.

Human resource

Gujarat Terce values its intellectual capital as an essential growth driver for doing business sustainably and profitably. It invests time and money to develop various programs that help upgrade its workforce in terms of skill and capability to address current and future business needs.

During the year under review, the Company organised programs to upgrade the skillset of its shopfloor employees and seminars and workshops for select middle management members to develop their leadership attributes.

The Company stresses people-to-people interaction to ensure the best working chemistry between the management and the workers. This has increased operational productivity and engagement, leading to a remarkable rise in eective person-hour utilisation. Industrial Relations continued to be cordial. The Company had 358 employees on its rolls as on March 31, 2023.

Risk management

At Gujarat Terce, our risk strategy is determined by a risk appetite defined by a series of risk criteria. The criteria are based on sectoral circumstances, internal capabilities, and our earnings target within accepted volatility limits.

The Board and leadership team work tirelessly to mitigate possible risks that bring along potential disruption in smooth business operations. This explains our creation of a robust risk management framework that caters to strategic, financial, operational and climate risks.

The Companys risk management framework sets guidelines to ensure sustainability within the Business Model. The risk management committee works closely on curating the mitigation plans for possible risks that might impact our business.

Cautionary Statement

The Management Discussion & Analysis Report may contain certain forward-looking statements within the meaning of applicable securities, laws and regulations. These statements are subject to certain risks and uncertainties. Actual results may dier materially from those expressed in the statements as important factors such as Government policies, tax laws, and political and economic development could influence the Companys operations.

				2022-23			2021-22
Particulars	Numerator	Denominator Numerator		Denominator	Ratio	Numerator	Denominator	Ratio
Current Ratio	Total Current Assets	Total Current Liabilities	1604.79	1660.8	0.97	1547.5	1321.36	1.17
Debt Equity Ratio	Borrowings	Total Equity	727.22	686.27	1.06	667.18	853.43	0.78
Trade Receivable	Revenue from	Average trade
			4678.25	673.035	6.95	4013.37	532.47	7.54
turnover Ratio Net Profit Ratio	Operations Net Profit	Receivables Revenue from Operations	-167.16	4678.25	-0.04	87.13	4013.37	0.0217
Return on net worth	PAT	Net worth	-167.16	686.27	-24%	87.23	853.43	10%
Interest Coverage Ratio	EBIT	Interest	-217.25	72.14	-3.01	114.75	40.1	2.86
Operating Profit Ratio	EBIT	Sales	-217.25	4678.25	-5%	114.75	4013.37	3%