Gujarat Terce Laboratories Ltd Management Discussions

Indian economy

In FY24, the Indian economy displayed remarkable strength, with a GDP growth of 7.6% on the back of good performance by the manufacturing and construction sectors. The industrial sector is projected to post a decent 7.9% growth, up from 4.4% registered last year. This optimistic outlook may be attributed to the strong performance of the manufacturing sector, which is owing to the easing of commodity prices and the resulting boost to business profitability. Notably, energy, metal, and food prices have moderated from their peak in September 2022. Simultaneously, the net direct tax collections (provisional) for FY24 exceeded union budget estimates by 7.40%, reaching H1.35 lakh crore. Until January 2024, the governments revenue spending stood at 79%, and 80% of the revised FY24 budgetary allocation on capital expenditure was also used up. At the same time, revenue spending stands at 79%.A record 11.11 trillion rupees (about US$134 billion) will be spent on infrastructure creation in 2024-25 to ensure India remains one of the worlds fastest-growing major economies.

The government has focused on infrastructure amidst global challenges like the Russia-Ukraine crisis and the resulting inflation, disrupted supply chains, and adverse impacts on trade.

Indias merchandise exports for FY24 totaled US$437.06 billion, a decrease from US$451.07 billion in the previous fiscal year. Similarly, goods imports dropped to US$677.24 billion from US$715.97 billion in FY23.

India has been trying to shift its trade strategy from East to West through free-trade agreements with major economies. Ongoing negotiations involve prominent nations such as the U.S., the UK, Australia, Japan, Peru, Chile and ASEAN(The Association of Southeast Asian Nations) countries. By the close of 2024, India is poised to finalise, or at least be, in the advanced stages of negotiations on free-trade agreements with almost all major economies.

In FY25, the RBI estimates the Indian economy to grow at 7%, partly due to rising rural demand, indicating higher consumption potential.

GROWTH IN GROSS VALUE ADDED
	2022-23 (Year-on-Year Change)	2023-24 (Year-on-Year Change)	First half 2023-24 (Year-on-Year Change)	Second half 2023-24 (Year-on-Year Change)
Gross value added	7	6.9	7.6	6.2
Agriculture, forestry and fishing industry	4	1.8	2.4	1.4
Industry	4.4	7.9	9.3	6.7
Mining & quarrying	4.6	8.1	7.6	8.4
Manufacturing	1.3	6.5	9.3	3.9
Electricity, gas, water supply and other utility services	9	8.3	6.4	10.3
Construction	10	10.7	10.5	10.9
Services	9.5	7.7	8	7.5
Trade, hotels, transport, communication & broadcasting services	14	6.3	6.6	6.1
Public administration, defence and other services	7.2	7.7	7.7	7.7
Public administration, defence and other services	7.2	7.7	7.7	7.7

SOURCE: CENTRE FOR MONITORING INDIAN ECONOMY PROWESS, MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION AND AUTHORS COMPUTATION

global pharma industry

The global pharmaceutical sector has seen a shift owing to higher healthcare awareness, rising respiratory diseases, shifts in lifestyles, a surge in pharmaceutical research and development (R&D) expenditure, a growing ageing population, a rise in the number of surgical procedures, robust economic growth in emerging markets and an increasing number of approvals for haematology/ oncology (cancer) drugs.

Despite a plateau in global medicine use in 2023, the pharmaceutical market reached an estimated US$1.6 trillion, according to Statista, a rise of over US$100 billion from 2022. This growth is expected to continue, driven by Asian markets like China and India, which are projected to expand at rates exceeding 3%, with the global market reaching an average growth rate of 2.3% by 2028.

In the last five years, Latin American countries have expanded faster than those in other areas, and the forecast indicates that they will continue to expand at a rate of 1.9% each year. Because of their higher per capita usage, North America, Western Europe, and Japan are predicted to have slower growth rates in the use of pharmaceutical products. It is anticipated that volume growth in Eastern Europe will resume in 2024 on patterns that existed before the conflict in Ukraine broke out.

By 2028, 400 billion defined daily doses will be added to worldwide medicine usage. Over the last five years, there has been an increase of 414 billion defined daily doses. This estimate is based on modelling medicine volumes shipped according to defined daily dose assumptions.

China, India and the Asia-Pacific region are predicted to have the biggest volume growth over the next five years, with growth rates above 3% CAGR. Lower volume growth in higher-income regions such as North America, Western Europe and Japan is linked to more established health systems and existing medical access.

TRENDS IN THE GLOBAL PHARMACEUTICAL INDUSTRY

Continued dominance of Small Molecule drugs

In 2024, small-molecule pharmaceuticals will still hold a 54.9% share of worldwide revenues, dominating the pharmaceutical industry. This is because they are less expensive than biologics and are simpler to manufacture, formulate and administer. These small-molecule drugs have also been shown to be effective and safe, and they contribute effectively to the treatment of the four main medical specialities that account for more than half of the growth in the pharmaceutical industry worldwide. These include diabetes, respiratory disorders, autoimmune diseases and cancer.

Increasing adoption of Biologics

By 2024, biologics should become increasingly prevalent as they provide more specialised and effective therapies for various illnesses. Biologics can target specific molecules or cells involved in disease processes because they are derived from living organisms. They are, therefore, more effective and efficient than conventional small-molecule medications. It is also anticipated that more cutting-edge and potent biological drugs may hit the market as technology progresses and R&D spending rises.

Curative therapies

The treatment approach has changed significantly, from controlling to curing diseases. ‘Cell and gene therapies are called curative therapies. The most often utilised vectors for gene therapy are viruses that have been genetically altered. These revolutionary breakthroughs can solve long-term therapy requirements for chronic illnesses or hard-to-treat ailments.

Assistance Scheme (PTUAS). This scheme was redesigned to encompass pharmaceutical manufacturing units with a turnover of less than H500 crore but needs support for upgrading their technology and quality l The government has also released an order where pharmaceutical companies must inform the licensing authority about recalling a drug and report product defects, deterioration, or faulty production under the revised Schedule M guidelines. Previously, there was no provision to inform the licensing authority about drug recalls

Some budget allocations under the Union Budget 2024-25 are mentioned below: l The Interim Union Budget 2024–25 states that the Department of Pharmaceuticals will spend H4,089.95 crore in the fiscal year

2024-25, of which approximately H2,143 crore will go towards PLI schemes. This represents an increase of 78.6% over the H1,200 crore allotted in the previous fiscal year l The budget allocation for the Jan Aushadhi Scheme, which aims to provide affordable drugs, would increase by over 1.5 times, from H115 crore in the current fiscal year to H285.50 crore in the fiscal year 2024–2025 l The Promotion of Bulk Drug Parks under the central sector scheme, ‘Development of Pharmaceutical Industry will be allocated H1,000 crore instead of the BE of H900 crore in 2023-24; the allocation for Promotion of Medical Device Parks will be reduced from H200 crore in the

BE for the current fiscal year, to H150 crore in 2024-25 l An allocation of H40 crore for the Assistance to Medical Device Clusters for Common Facilities (AMD-CF) is significantly higher than the current fiscal years expenditure of H33 crore. The allocation for Assistance to the Pharmaceutical Industry for Common Facilities (API-CF)/ Cluster Development is H50 crore instead of H51 crore allocation in the BE for 2023-24

TRENDS IN THE INDIAN PHARMACEUTICAL INDUSTRY

Generic drug manufacturing

Indian pharmaceutical businesses are taking advantage of the opportunity presented by many major medicine patents expiring to manufacture affordable generic versions for both domestic and international markets. This development reinforces Indias standing as a major worldwide powerhouse for pharmaceuticals and advocates for accessible healthcare.

The emergence of new Go-To-Market (GTM) models

Traditional channels of distribution are changing. To better engage consumers, businesses are looking into direct-to-consumer marketing, tele-medicine platform partnerships and online pharmacy.

Indian pharma industry

India is the worlds biggest supplier of generic pharmaceuticals and is renowned for its reasonably priced vaccines and generic medications. The pharmaceutical sector in India has grown over the previous nine years at a compound annual growth rate (CAGR) of 9.43%, placing it third in the world in terms of pharmaceutical manufacturing capacity.

Indias pharmaceutical industry provides more than half of the worlds demand for different vaccinations, 40% of the U.S. market for generic drugs, and 25% of the UK market for all medications. Despite declining total goods exports, pharmaceutical exports increased 9.6% to US$27.8 billion in FY24. This is the largest export growth for the pharmaceutical industry in the last three years.

According to experts, important categories, including API (active pharmaceutical ingredients) and generic formulations, which account for 73% of all exports, have grown strongly in important markets like the U.S., Europe, and Africa.

Indias pharmaceutical market is expected to grow to US$130 billion by 2030 and US$65 billion by 2024. Some government schemes for the Indian pharmaceutical industry are listed beside: l The Government has initiated the Promotion of Research and Innovation in the Pharma and MedTech sector (PRIP) scheme, worth H5,000 crore, to transform Indias cost-based pharma MedTech industry into one centered on innovation. The initiative intends to boost the countrys research infrastructure l The Government has modified a scheme that provides financial support to pharmaceutical companies to help them modernise their facilities and manufacture medicines that meet international standards. The Government has also extended the reach of the Pharmaceuticals Technology Upgradation about the company Gujarat Terce Laboratories Limited is a pharmaceutical firm in Ahmedabad that produces and distributes branded generic medications. Its foundation is based on the core values of EXCELLENCE & COMPASSION.

The Company offers a wide range of products under 52 Brands, totalling 135 items, and its portfolio covers 10 therapeutic categories.

Continuous commitment to research has allowed the Company to spot gaps in the current treatments for certain illnesses and fill them with effective solutions.

operational performance

FY 2024 was a seminal year for the organisation. Serious efforts in manufacturing and marketing helped the Company scale the efficiency of its operations. On the shop floor, the Company focused on optimising costs at all levels. Also, the team persevered in increasing productivity by optimising processes.

On the field, the team streamlined its working capital (inventory and receivables), which unlocked significant funds. The team worked on increasing its prescriber base, which generated increased volumes.

financial overview

The Company registered a superior all-round performance in FY24 with a healthy uptick in revenue from operations and a reversal in profitability. Net loss incurred in FY23 turned to a Net Profit.

This performance was due to the sales teams efforts on the field, improved working capital management policies and cost optimisation initiatives. The Company worked diligently in sweating its assets (product brands, people resources and operational infrastructure) to improve business returns.

The improved cash flow was prudently deployed to reduce debt to arrive at a zero-debt position in the near future. Going forward, the Company will continue to streamline its business operations with a special focus on working capital management. This would improve business liquidity and unleash significant value for its stakeholders.

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 9^th 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:

Particulars	Items included in numerator	Items included in denominator	Current Year Ratio	Previous Year Ratio	Change in the ratio by more than 25% as compared to the preceding year	Explanation for deviation of more than 25%
Debtors Turnover ratio	Net Credit Sales	Average Trade Receivable	7.03	6.95	1%
(a) Current ratio	Current Assets	Current Liabilities	0.92	0.97	5%
(b) Debt-Equity ratio	Long Term Debt+Short Term Debt	Shareholders Equity	0.54	1.06	49%	Debt obligations have been reduced by a reduction in current liabilities as well as increase in profit
(c) Interest Service Coverage ratio	EBIT	Interest	1.80	-3.01	160%	Interest has been serviced by the company out of profits earned by the company during the year
(i) Operating Profit Margin (%)	EBIT	Net Sales	3%	-5%	155%	Due to a decrease in expenses related to sales, the net profit ratio has improved
(i) Net Profit Margin (%)	Net Profit	Net Sales	1%	-4%	125%	Due to a decrease in expenses related to sales, the net profit ratio has improved
(d) Return on Net Worth (%)	Earnings After Interest, Tax, Depreciation & Amortisation	Net Worth	3.43%	-24%	114%	The company has earned profits in the current year vis-?-vis losses incurred in the previous year

INTERNAL CONTROL & ITS ADEQUACY

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

The Company maintains appropriate internal control systems, including monitoring procedures, to safeguard all assets against unauthorised use or disposition loss. Significant issues are brought to the audit committees attention for periodic 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 sufficient 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 to monitor statutory and operational issues. Adherence to statutory compliance is a key focus area for the Companys leadership team. The Company continuously strives to integrate the entire organisation, from strategic support functions like finance, human resources and regulatory affairs to core operations like research, manufacturing and supply chain.

Gujarat Terce continues to build its teams with quality talent and emphasises conducting frequent training modules to empower employees.

HUMAN RESOURCE

Gujarat Terce values its employees as they champion the business and determine its success or failure. The Company dedicates resources in terms of time and finances towards crafting diverse programmes to enhance its workforces skill set and capabilities. These initiatives are geared towards effectively meeting present and future business demands.

The Company takes several initiatives to upgrade its employees skills. Furthermore, a culture of continuous learning and feedback is cultivated, encouraging employees to expand their horizons and pursue their passions. By prioritising the growth of its employees, Gujarat Terce not only ensures a skilled and motivated workforce but also cultivates a vibrant and dynamic organisational culture where individuals can flourish personally and professionally.

The emphasis on interpersonal communication within the Company fosters strong working relationships between the management and employees. This focus has notably boosted operational efficiency and employee engagement. Industrial Relations continued to be cordial. The Company had 286 employees on its rolls as of March 31, 2024.

RISK MANAGEMENT

At Gujarat Terce, the approach to risk management is guided by a carefully crafted risk appetite, which is established through a set of criteria that consider sector-specific conditions, internal capacities and the Companys financial objectives within acceptable levels of volatility. The Board and leadership teams are dedicated to proactively addressing potential risks that could disrupt business operations. This commitment is evident in developing a robust risk management framework that addresses strategic, financial, operational and environmental 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 business.