Gujarat Themis Biosyn Ltd Management Discussions

MANAGEMENT DISCUSSION & ANALYSIS:

Cautionary Statement:

The statements in the "Management Discussion and Analysis Report" describe the Company Rs.s objectives, projections, estimates and expectations which may be "forward-looking statements" within the meaning of the applicable laws and regulations. The actual results could differ materially from those expressed or implied, depending upon the economic and climatic conditions, government policies, taxation and other laws and other incidental factors.

Financial Overview:

The financial performance of the Company for the financial year ended 31^st March, 2024, is as follows:

Total revenue from operations stood at Rs.169.82 Crores for the year ended 31^st March, 2024, as against Rs.148.39 Crores for the corresponding previous financial year, an increase of 14.45%.

The total cost of raw materials incurred (including changes in inventory) for the financial year ended 31^st March, 2024 was Rs.36.68 Crores as against Rs.26.49 Crores for the corresponding previous period.

The EBIDTA (earnings before interest, depreciation and tax, excluding other income) was Rs.78.73 Crore for the year ended 31^st March, 2024, as against Rs.73.63 Crore for the corresponding previous period, an increase of 6.93%.

The finance cost for the financial year ended 31^st March, 2024 was Rs.0.23 Crore as against Rs.0.18 Crore for the corresponding previous period.

The PAT (profit after tax) was Rs.59.16 Crores for the year ended 31^st March, 2024, as against Rs.57.97 Crores for the corresponding previous period, an increase of 2.06%.

Resources and Liquidity:

The cash, cash equivalents and bank balances at the end of 31^st March, 2024 were 8.16 Crore. The debt to equity ratio of the Company was zero as on 31^st March, 2024.

Business category wise performance:

GTBL operates in one segment i.e. pharmaceuticals. The results of the Company depict business growth during the period. The Company is presently manufacturing Rifamycin S, which is an intermediate for manufacturing the drug Rifampicin (an Antibiotic used for the treatment of several types of bacterial infections, including tuberculosis, Mycobacterium avium complex, leprosy, and Legionnaires disease) and Rifamycin O, which is an intermediate for manufacturing the drug Rifaximin (this is an Antibiotic used for treatment of travelers diarrhea, irritable bowel syndrome, and hepatic encephalopathy).

Risks & Concerns:

The business of the Company is exposed to some risks. Risks, liabilities and losses are part and parcel of any industry and need to be tackled through well forecasted strategies and actions.

Unfavourable Policy Changes

Drug pricing and other policies and laws impacting the operations of the Company are subject to changes by the Government. Any potentially adverse changes in government policies with respect to essential medicines and pricing with respect to the products may impact margins of the Company. For instance, inclusion of new molecules into the price control umbrella, or bans on various fixed dose combinations, by the Government, may create new risks for the domestic market.

Credit Risk

To manage its credit exposure, GTBL has determined a credit policy with credit limit requests and approval procedures. The Company does its own research of a counterpartys financial health and business prospects. Timely and rigorous process is followed up with clients for payments as per schedule. The Company has suitably streamlined the process to develop a focused and aggressive receivables management system to ensure timely collections.

Competition Risk

Like in most other industries, growth opportunities lead to a rise in competition. We face different levels of competition, from domestic as well as Chinese companies. GTBL has created strong differentiators in execution, quality and delivery which make it resilient to competition. Furthermore, the Company continues to invest in R&D and its skilled workforce to maintain a competitive edge. Stable and long-standing client relationships further help maintain a strong order book and insulate the Company from this risk. We also mitigate this risk with the quality of our infrastructure and specialized fermentation-based methodologies, coupled with prudent financial and human resources management and better control over costs.

Input Cost Risk

Our profitability and cost effectiveness are affected by changes in the prices of raw materials, power and other input/utility costs.

OPPORTUNITIES & THREATS

Opportunities Growth in Pharma Sector

India is one of the largest provider of generic drugs globally and is known for its affordable vaccines and generic medications. The Indian Pharmaceutical industry is currently ranked third in pharmaceutical production by volume after evolving over time into a thriving industry growing at a CAGR of 9.43% since the past nine years. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK. This presents a strong growth opportunity for the Company in the global scenario.

Indian Market Size & Export Opportunities

The overall size of India pharmaceuticals industry is expected to reach US$ 65 billion by end of 2024, and ~US$ 130 billion by 2030. According to Government data, the industry is worth approximately US$ 50 billion with over US$ 25 billion of the value coming from exports. About 20% of the global exports in generic drugs are met by India.

India is among the top 12 destinations for biotechnology worldwide and 3^rd largest destination for biotechnology in Asia Pacific. In 2022, Indias Biotechnology industry crossed US$ 80.12 billion, growing 14% from the previous year.

India is the 3^rd largest producer of API, accounting for an 8% share of the Global API Industry. About 500+ different APIs are manufactured in India, and the country contributes 57% of APIs to prequalified list of the World Health Organization (WHO).

Note: 2024 figure estimated, 2030 figure forecasted Source: https:/ /www.ibef.org/industry/pharmaceutical-india

Outsourced Manufacturing in Global Pharma Sector

There is an increasing trend of outsourcing manufacturing for various drugs and pharma products across the world. Pharmaceutical research firms are increasingly looking to focus on R&D and outsource the manufacturing to Companies that have requisite manufacturing expertise. Such trends present new opportunities for Companies that can leverage their production capacities.

increasing investments in the Pharma Sector

The sector has been witnessing strong inflow of investments which are conducive for companies operating in this industry to grow.

- Up to 100% FDI has been allowed through automatic route for Greenfield pharmaceuticals projects. For Brownfield pharmaceuticals projects, FDI allowed is up to 74% through automatic route and beyond that through government approval.

- The cumulative FDI equity inflow in the Drugs and Pharmaceuticals industry was US$ 21.58 billion during the period April 2000 to September 2023. This constitutes almost 3.3% of the total FDI inflow received across sectors.

- The Department of Pharmaceuticals is planning to launch a Scheme for the Promotion of Research and Innovation in Pharma (PRIP) MedTech Sector. The scheme has been approved by the Union Cabinet for a period of five years starting from 2023-24 to 2027-28 with a total outlay of 5,000 crore (US$ 604.5 million).

Government initiatives

Favourable schemes by the Government of India in the recent past to support and grow the Pharmaceuticals sector bode well for companies operating in this industry.

The Union Budget introduced several new schemes to provide impetus to the pharma and healthcare sector in India.

- The Union Cabinet approved the National Medical Devices Policy, 2023. This policy is expected to facilitate an orderly growth of the medical device sector to meet the public health objectives of access, affordability, quality and innovation.

- The Ayushman Bharat Digital Mission (ABDM) was recently launched

- The Department of Pharmaceuticals has prepared an Umbrella Scheme namely Scheme for Development of Pharma industry, which covers: Assistance to Bulk Drug Industry for Common Facilitation Centres; Assistance to Medical Device Industry for Common Facilitation Centres; Assistance to Pharmaceutical Industry (CDP-PS); Pharmaceutical Promotion and Development Scheme; and Pharmaceutical Technology Upgradation Assistance Scheme.

Sources: https://www.ibef.org/industry/pharmaceutical-india.aspx

Threats

Threat from Global Competitors

Indian pharma companies face competition from bigger, global pharma companies, backed by larger financial strength, as well as from China-based players. Disproportionate or anti-competitive pricing from Chinese companies can pose threat to the domestic market.

Threat from Generics

Generic drugs offer cost-effective alternatives to drugs innovators and significant savings to customers. internal control system and adequacy:

The Company ensures the orderly and efficient conduct of its business, including adherence to Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013. The Statutory Auditors while conducting the statutory audit, review and evaluate the internal controls and their observations are discussed with the Audit Committee of the Board. Other statutory requirements especially, in respect of pharmaceutical business are also vigorously followed in order to have better internal controls over the affairs of the Company.

Outlook:

Over the next five years, Indias medical spending is expected to increase by 9-12%, placing the country among the top 10 in the world for medical spending. Future domestic sales growth will also be contingent upon companies capacity to match their product offerings to treatments including cardiovascular, anti-diabetic, anti-depressant, and anti-cancer medications for chronic diseases, all of which are experiencing an increase in prominence.

The Indian government has implemented several measures aimed at curbing expenditures and lowering medical prices for consumers. The aging population, an increase in chronic illnesses, government initiatives like the National Health Protection Scheme (which aims to provide universal healthcare), and the opening of pharmacies selling low-cost medications should all help to strengthen the Indian pharmaceutical sector. Indian pharmaceutical companies stand to gain from the ongoing focus on timely launch of medications into the market. Furthermore, the focus on preventive vaccinations, life-saving medications, and rural health programs reflects well for businesses in this industry.

There are very few companies in India which have the expertise in the field of fermentation. Many products manufactured by fermentation are not made in India. The countrys needs are largely met through imports. GTBL is continuously identifying fermentation-based products which have good domestic and export potential.

The Company is investing in:

• R&D for new product development;

• Expanding fermentation capacities; and

• Forward integration into API, through an API facility

Capex plan of 200 crores capex already underway, and the new facilities will comply with global standards.

With such R&D and manufacturing capacities in place, GTBL is in a good position to capitalize on the significant growth opportunities in this sector going forward in the domestic as well as global markets.

Sources: https://www.ibef.org/industry/pharmaceutical-india

https://www.ibef.ora/download/1659942652 Pharmaceuticals-June 2022.pdf https://www.ibef.org/industry/pharmaceutical-india.aspx

OPERATIONAL OVERVIEW:

GTBL constantly reviews its product position in the market in terms of demand trends, with a view to sustain its growth. The Company also explores opportunities for new fermentation-based products. The Company is operating in a dynamic environment, characterized by the following aspects.

(a) Industry structure and developments:

The Indian pharmaceutical industry, which is frequently referred to as the "pharmacy of the world", has been expanding. It is forecast to grow from $40 billion in 2021 to an estimated $130 billion in 2030, and by 2047, it is predicted to reach $450 billion.

In addition to meeting domestic demand, the Indian pharmaceutical industry controls more than 20% of the global pharmaceutical supply chain and provides vaccines for over 60% of the global vaccination market. It supplies 25% of all medications in the UK and 40% of the generic demand in the US. It has undergone a remarkable transformation, evolving into a dynamic powerhouse driving healthcare advancements worldwide. Interestingly, India is the biggest contributor to UNESCO, with a share of over 50-60%. Plus, it boasts the highest number of US FDA-approved plants outside the U.S.

The industry benefits from cost competitiveness, driven by factors such as lower labor costs, economies of scale, and efficient manufacturing processes. This cost advantage enables Indian pharmaceutical firms to provide competitively priced products both domestically and globally. The industrys broad reach and diversity provide resilience and adaptation to the demands of the supply chain, allowing companies to effectively navigate through market volatility and address a wide range of needs. The significance of strong supply chain networks that can fulfill strict regulations, guarantee superior quality, and get over logistical obstacles is highlighted by their extensive global presence.

Following the Covid-19 pandemic, pharmaceutical supply chains have evolved to become more agile, transparent, and resilient. There is a significant ongoing investment in automating manufacturing and packaging processes to enhance productivity, operational cost efficiency, and labeling precision. This transformation has enabled the implementation of on-demand delivery models, employing strategies like direct-to-patient approaches and B2B e-commerce platforms. Source: https://www.maersk.com/insiahts/arowth/2024/02/27/pharmaceutical-supply-chain-in-india

(b) Government Initiatives for Pharmaceuticals Industry:

There have been several initiatives by the Government to Support the Indian Pharma Sector. In the Union Budget 202324, the Government announced the following:

• A mission to eliminate sickle cell anaemia by 2047 will be launched. It would involve raising awareness, conducting a comprehensive screening of seven crore individuals in the impacted tribal regions, up to the age of 40 years, and providing counselling through coordinated efforts.

• The government would also facilitate select ICMR labs with facilities like research by both public and private medical collage facultys alongside private sector R&D teams.

• For innovation in the pharmaceutical sector, through centres of excellence, a new initiative to encourage pharmaceutical research and innovation will be implemented. The Government persuades businesses to spend money on R&D in a few chosen priority fields. At the grass root level, the Government has also announced on building 157 nursing colleges in co-location with Government medical colleges.

• The Ministrys scheme "Strengthening of Pharmaceutical Industry (SPI)" with a total financial outlay of US$ 60.9 million (500 crore) extends support required to existing pharma clusters and MSMEs across the country to improve their productivity, quality and sustainability.

• The Government has set a target to increase the number of Pradhan Mantri Bhartiya Jan Aushadhi Kendras to 10,500 by March 2025. The product basket comprises 1,451 drugs and 240 surgical instruments.

• The thrust on rural health programmes, lifesaving drugs and preventive vaccines augurs well for pharmaceutical companies.

Source: https://www.ibef.org/industry/indian-pharmaceuticals-industry-analysis-presentation Companys Strategy

GTBL is focusing on organic growth initiatives to capitalize on the rising market opportunities.

The Company is expanding its growth avenues through an ongoing capex plan which will help increase its product portfolio as well as position in the overall value chain. As part of this strategy, the Company has been investing in new product development through R&D, as well as forward integration into API, and lastly, in expanding its fermentation capacity.

Consequently, the Company aims to expand its product portfolio with new fermentation-based molecules, as well as some APIs.

The increase in top line and profitability of the Company have continued to sustain over the last year. The Company is fully aware of its capabilities and strengths and is going ahead with the expansion initiatives.

(c) Segment-wise or product-wise performance:

The Company operates in single segment i.e., pharmaceuticals. The results of the Company under review depict business growth during the period.

(d) Discussion on financial performance with respect to operational Performance:

The operational performance during the year under review has grown year-on-year. The Company has maintained its levels of production at optimal utilization. Demand for both products has also remained healthy.

The top line and Profit after Tax increased by 14.45% and 2.06%, respectively, compared to previous year. The Company continued to generate profit during the year under review.

(e) Material developments in Human Resources/lndustrial Relations front, including number of people employed:

The core of the Human Resource philosophy at Gujarat Themis Biosyn Ltd. is empowering human resources towards achievement of company aspirations. Your Company has a diverse mix of youth and experience which nurtures the business. As on 31^st March 2024 the total employee strength was 157.

(f) Details of significant changes in key financial ratios (i.e. change of 25% or more as compared to the immediately previous financial year):

Sr. No Particulars	2023-24	2022-23
1. Inventory Turnover (in days)	19.29	32.26
2. Current Ratio	2.94:1	4.04:1

(g) Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

Financial year	AA 2023-24	2022-23
Return on net worth (%)	29.38%	38.87%

Change in return on Net Worth in current year compared to last year is due to dividend declared and distributed during the year.