Gujarat Terce Laboratories Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENTS Global Economy:

GTLL (Gujarat Terce Laboratories Limited) an uncertain global environment and challenging industry dynamics, we have continued to grow. This encouraging performance has been supported by our commitment to quality, adherence to compliance, manufacturing excellence and strong supply chain capabilities.

The Union Cabinet has given its nod for the amendment of the 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 global pharmaceutical market is expected to exceed $1.5 trillion by 2023 and the key growth drivers will continue to be the US and India. Indias pharma spends are expected to increase to $28-32 Billion by 2023. Last year, the Government of India launched the National Health Protection Scheme (NHPS), with a vision to provide insurance cover to an estimated 50 Crores individuals from nearly 10 Crores poor and vulnerable families. With the government having spent half a Billion dollar as funding for the programme, the Finance Minister while presenting the Interim Budget raised the allocation for Ayushman Bharat scheme to Rs 6,400 Crores for 20192020. This will further provide an impetus to the sector and help the patients with better access to medicines. Indian pharmaceutical sector is expected to grow at a CAGR of 15 per cent in the near future and medical device market expected to grow $50 billion by 2025.

Global Pharma Market:

Government of Indias Pharma Vision 2020 aims to make India a global leader in end to end drug manufacturing. The sector has received cumulative FDI worth US$ 15.93 billion between April 2000 and December 2018. Under Budget 201920, allocation to the Ministry of Health and Family Welfare increased by 3.1 per cent to Rs 63,298 crore. Increasing private sector investment in R & D and acquisitions are driving the sectors growth. In FY18, Indian pharma companies invested 8.8 percent of their sales in R&D.

Currently, the domestic pharma industry contributes to over 4% to the gross domestic product (GDP), against the global average of 9%. However, this is going to improve in the next five years with the estimated rise in domestic pharma spends. Today, close to half a Million people are directly employed by the sector, making India the second highest skilled biotech workforce in the world after China. India is also one of the largest exporters to regulated pharma markets across the globe and Indian pharma firms contribute to over 20% of global generic business. These positive trends bolster our commitment to ensure that no patient will be denied access to high-quality affordable medicine and medical support.

As an Indian pharma company with over 100 years of expertise, we have progressed on the path to providing high-quality products to patients globally. A strong domestic branded business and steady progress on building capabilities to provide a diversified offering to stable developed markets remain our competitive advantage. This provides us the window to leverage more growth opportunities.

In March 2018, the Drug Controller General of India (DCGI) announced its plans to start a single-window facility to provide consents, approvals and other information. The move is aimed at giving a push to the Make in India initiative.

The Government of India is planning to set up an electronic platform to regulate online pharmacies under a new policy, in order to stop any misuse due to easy availability.

We are continuously investing in the Companys complex manufacturing capability and fortifying our supply chain management practices to achieve operational excellence. Our capacity expansion plan is on track. Our Indian formulations business added substantial prescriber base in FY19, reaffirming our brands position.

As a company with a rich legacy of serving the global pharma market, we remain focussed on complete compliance to regulatory norms and have integrated our human resources management processes to drive a culture of integrity.

Better access to affordable healthcare remains one of the biggest global challenges and at GTLL we are working towards meeting this global priority. Our efforts are underpinned by steady production of high-quality products, an agile supply chain and a proactive marketing team that leverages opportunities to reach more patients across geographies.

OPPORTUNITIES AND THREATS

In FY19, our business reflected the agility of our supply and helped us reach our customers at the right time. Thus, ensuring that we could capitalise on short-term market opportunities and leverage the same to build long-term partnerships. Our people management initiatives are focused on customising knowledge-enhancement modules that cater to diverse needs of each business. We have driven a culture which is based on meritocracy and have a strong reward policy for talent that outshines their set responsibilities. Our HR policies have helped boost innovation and have provided opportunities to learn and grow.

This has enabled our team of 300 plus employees to consistently contribute to GTLLs growth. Our commitment to integrity and inclusion begins at the top, with clear leadership from the Board and is embedded at every level of our business. We have consistently worked towards creating a truly inclusive work culture that celebrates and upholds diversity. Our workforce including our senior leadership represent a diverse set of experiences and opinions to help us achieve our goals and better understand the needs of patients across the globe. Indias drug price control regime is inconsistent in its implementation. The National List of Essential Medicines (NLEM) has drugs whose prices are decided by the government, but without any industry representation. There are the risk of increase competition in generic drugs. The pharmaceutical industry threats could include increased government regulation, a declining economy, increasing research and development costs or a decrease in the global population.

OUTLOOK

According to the World Economic Outlook by IMF, the global economic growth in 2018 is estimated to be around 3.7%. Going forward, the global growth is expected to slow further. Growth projections for the US remains unchanged at 2.5% and India, Japan and Sub-Saharan Africa are projected to grow to 6.3% and 3.5% respectively. Indian GDP is expected to grow at 7% in FY19.

Source: International Monetary Fund and Central Statistics Office

The global population (7.7 Billion) is expected to reach 8.5 Billion in 2030. More than half of the anticipated growth in global population is expected to be in Africa, with Asia being the second largest contributor to this growth to 9.7 Billion in 2050 and 11.2 Billion by 2100. Global fertility is projected to fall from 2.5 children per woman in 2010-2015 to 2.4 in 2025-2030. Number of persons aged 80 or over is projected to increase from 137 Million in 2017 to 425 Million in 2050 across the world. Source:https://www.un.org/en/sections/issues-depth/ population/

The increasing demand for healthcare continues to be a burden for economies across the globe and their public healthcare systems. Many countries have introduced several measures requiring government to introduce measures to make medicines more accessible and affordable. In India, 851 medicines are regulated under Government of Indias National List of Essential Medicines, 2015.

Source:http://164.100.47.194/Loksabha/Questions/

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We continue to see a significant opportunity in the market and will use periods of interim weakness as investment opportunities for long term.

RISKS AND CONCERNS Quality risk

In case of discrepancies during packaging/ manufacturing, patient safety may be endangered due to failure of collection,

review, follow up, or report adverse events from all potential sources. Constant Quality Improvements incorporated throughout the organization and team committed to quality standards and procedures.

Competitive Dynamics

Adverse global and domestic demand-supply dynamics and unfair trade practices can pose competitive risks. The Company has continuously monitor and evaluate the market development and competitive landscape.

Environment, Health, Safety and Sustainability

Any shortcoming in compliance with Company policies on maintaining Environment, Health, Safety and Sustainability standards can erode the brand image and trust. The Company has greater focus and increased regulatory activity on environmental issues.

Intellectual property

The Company may run the risk of running into litigation if companys products and processes infringe trademark held by other manufacturers. The Company has create a vigilance mechanism via an IPR department to check for possible infringement of intellectual property rights of trademark proprietor.

New Product risk

New product development and launch involves substantial expenditure, which may not be recovered due to several factors including development uncertainties, increased competition, regulatory delays lower than anticipated price realizations, delay in market launch and marketing failure.

New capital investments

The Company continuously adds capacity to meet the increasing demand of pharma products from various markets. The Company faces risks arising out of delay in implementation, cost overrun and inappropriate implementation. The capacities are built in anticipation of demand and the Company runs the risk of under-utilization of capacities resulting in high manufacturing cost. The risks are sought to be mitigated by forming appropriate project management team and corporate management oversight.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company main tans appropriate systems of internal control, including monitoring procedures, to ensure that all the assets are safeguarded against loss from unauthorized use or disposition. Company policies, guidelines and procedures provide for adequate checks and balances are meant to ensure that all transactions are authorized, recorded and reported correctly.

The Company had appointed D.V. SHAH & ASSOCIATES, as internal auditors. The prime objective of this audit is to test the adequacy and effectiveness of all internal control systems and suggest improvements. Significant issues are brought to the attention of the audit committee for periodical review. 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 notice of the audit Committee of the Board following which corrective action is recommended for implementation. All these measures facilitate timely detection of any irregularities and early remedial steps with no monetary loss.

We continue to build our team with high quality talent, and put thrust on providing continuous training to be competitive. We continuously strive to integrate the entire organization from strategic support functions like finance, human resources, and regulatory affairs to core operations like research, manufacturing and supply chain. 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 entire leadership team of the Company.

FINANCIAL PERFORMANCE

During FY19 our performance was impressive. In FY19, Our Revenue from the Operations for the year ended March 31, 2019 was 31.03 Crores representing an increase of 6.95 % over the previous year. Overall performance of company during the year was extremely appreciable and the Net Profit of company has reached to Rs 43.25 Lakh compared to last years loss Rs 34.54 Lakh registering a growth of 25.21%.

The company was able to reduce the borrowing from Rs 15.83 Lakh last year to Rs 12.79 Lakh this year. We have made steady progress in building a robust pipeline, strengthening capabilities and consolidating processes to build faster delivery. During FY19 Your Company has increase Property, Plant and Equipment of Rs 39.70 Lakh. This is going to support our capacity building initiatives and help us reap benefits for the long-term. In FY19, we continued to grow at a market-leading pace. This performance has been supported by the agility of our supply chain and quality excellence of our products. Moreover, we undertook several initiatives to optimize processes in our existing manufacturing units to improve production.

HUMAN RESOURCES

At Gujarat Terce Laboratories Limited, we are aware that our employees power the success of our Company and in turn, we are committed to empowering theirs. We believe that People management is probably one of the most important leadership skills, as it directly influences productivity, morale and motivation throughout the organization. In line with this strategy, we have structured ground-breaking and game-changing innovations for our employees. In order to make the organisation strong, progressive and dynamic; our Company focusses on organisational development, employee engagement and talent management and retention. During the year, we focussed on improving productivity, people management skills, engagement and leadership skills of our employees, to make them leaders of tomorrow. Our approach to reward and recognition is quite transparent, meritocratic and market competitive, built on an ethical and values based performance culture which aligns the interests of our employees, shareholders and customers. The total employee strength of the Company at the end of financial year 2018-19 was 310 against 263 as at the end of financial year 2017-18, increased by 47 employees. Important factors that could make a difference to the Companys operations include among others, economic conditions affecting demand/ supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the government regulations, tax laws and other statutes and incidental factors.

DETAILS OF SIGNIFICANT CHANGES

Debtors Turnover 6.81
ii. Inventory Turnover 3.53
iii. Interest Coverage Ratio 2.83
iv. Current Ratio 1.38
v. Debt Equity Ratio 0.80:1
vi. Operating Profit Margin (%) 1.87
vii. Net Profit Margin (%) 1.39

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR:

During the year return on net worth is 3.99% compared to 3.32% immediately previous financial year. There is change during the year is 0.67% in return on net worth.

CAUTIONARY NOTE

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

By Order of the Board
For, Gujarat Terce Laboratories Limited
Place : Ahmedabad Natwarbhai P. Prajapati
Date : 18/05/2019 Chairman & Managing Director
DIN: 00031187