Ind Swift Laboratories Ltd Management Discussions.

Global economy

The global economy has experienced some steady years of growth overtime due to buoyancy in advanced markets and equally stable economic scenario in the emerging markets.

In 2018, a lot changed which contributed to a significantly weakened global expansion, especially in the second half of 2018. The world economy ended 2018 with growth rate of 3.6%.

This weakness is expected to persist into the first half of 2019. The ensuing years will be challenging for the world economy given the slowness in fundamental economic indicators in the advanced economies like US and Europe. The impending trade and technology conflicts in United Kingdom and Euro zone will result in world growth slipping to 3.2% in 2019 with some rebound in sight in 2020 to 3.5%.

There is a remote possibility of the US & China tug-of-war in the economic landscape coming to an amicable settlement. During May, 2019 the US imposed tariff to the tune 20%, up from 10% on a total consignment of US$200 billion Chinese export goods.

It is expected that advanced economies will witness growth of 1.9% in 2019 and fall further to 1.7% in 2020. Comparably, the Euro region will grow at 1.3% in 2019 and 1.6% in 2020. There is some promise of growth momentum in the emerging markets although much lower than their potential growth rate, growth will hover around 4.1% in 2019 and touch a high of 4.7% in 2020.

(Source: World Economic Outlook, IMF, Updated, July2019)

Indian economy

Fiscal 2018-19 was a year of benign growth for the Indian economy. Growth dropped to 6.8% in FY19. But despite this moderation, India continued to be one of the fastest growing major economies in the world in 2018-19.

So what led to the decline? India started on a healthy note with an 8% GDP growth in the first quarter and a 7% growth in the second. But in the second half of 2018-19, growth slipped to below 6.5%. This was due to the poor performance of farm, mining and manufacturing sectors - it led to an overall deceleration in economic progress.

Indias industrial production contracted by 0.1% in March 2019, the lowest in 21 months, mainly due to a slowdown in the manufacturing sector. On an annual basis, IIP growth slowed to a three-year low of 3.6% in the 2018-19 fiscal as against 4.4% in the previous fiscal.

Despite this weakness, the Central Government proactively maintained a tight lease on the fiscal deficit (at 3.4% for FY19); the rupee stabilised against dollar given the recent reduction in global oil prices and a steady foreign reserve balance of US$412.9 billion in FY19.

Revenue from Goods and Services Tax (GST) witnessed a 10% growth from the year-ago period at D1.13 trillion in April (for March 2019), the highest ever since its implementation. It crossed the 1 trillion mark for the first time in March 2019.

Outlook for FY20: The Indian economy is expected to grow at about 7% in FY20 due to some internal challenges such as a weak domestic demand forecast. It is expected that the Reserve Bank of India will cut policy rates in order to improve demand given that the Consumer price index (CPI) a proxy indicator of inflation is well within 4%.

India moved up by 23 places in the World Banks Ease of Doing Business Index 2018 to the 77th rank.

Global pharmaceutical sector

The global market for pharmaceuticals reached US$1.2 trillion in 2018, up US$100 billion from 2017, according to the Global Use of Medicines report from the IQVIA Institute for Human Data Science. For the US specifically, the 2018 spending was US$485 billion, up 5.2% over the previous year.

Going forward: The Global pharma market is expected to catapult significantly and exceed US$1.5 trillion by 2023 spurred on by a growth of 3-6% CAGR. This growth is much slower than the 5-6% CAGR growth seen during the past five year period. The key reason of this slowdown is a contagion effect of slow economic growth around the world.

The global pharma market will also witness a surge in new product launches; it is expected to increase from an average of 46 in last five years to 54 by 2023. The market acceptance of new products will also improve with spending on new products to rise to US$45.8 billion in the next five years.

The impact of exclusivity loss in developed markets is expected to be US$121 billion between 2019 and 2023, with 80% of this impact (~US$95 billion) in the US. By 2023, 18 of the current top-20 branded drugs will be facing generic or bio similar competition.

In the US market it is expected that the invoice spending will grow at 4-7% to US$625-655 billion across all channels.

Indian pharmaceutical industry

The Indian pharma industry is expected to grow by leap and bounds. Robust industry growth over the last three decades has positioned India as the worlds third largest producer of drugs (in volume terms).

Currently, India is the largest provider of generic drugs globally and caters to over 50% of global demand for various vaccines, 40% of generic demand in the U.S., and 25% of all medicines in the U.K.

The domestic industry market turnover reached US$18.12 billion in FY19 growing 9.4% y-o-y from US$17.87 billion in FY18. India remains the hub of low cost manufacturing; cost of production is appreciably lower compared to the US and most of Europe which lends India a major competitive advantage.

The market composition is dominated by generic drugs, which enjoy around 70% of the market share in terms of revenue. The other constituents are the OTC and patented drugs segments. The share of generic drugs is expected to maintain its market share and reach US$ 27.9 billion in 2020.

The export market is dominated by the generic drug segment which account for 20% of the global generic drug export in volume terms. The export volume reached US$19.14 billion in FY19. In terms of geographical break-up, the US is still the dominant export destination for Indian pharma product.

Active Pharmaceutical Ingredients (APIs) Domestic API consumption is expected to reach US$18.8 billion by FY2021.

In April, 2018, a high-level task force was constituted to create a roadmap for increasing domestic production of APIs.


jUx Largest exporter of formulations in terms of volume, with 14% market share and 12th in terms of export value. Drug formulation* exports from India reached US$14.39 billion during FY19 and US$1.2 billion in FY20 (up to June 2019).

JIL, Double-digit growth is expected over



Contract Research and Manufacturing Services (CRAMS)

JaL, Fragmented market with more than 1,000 players.

jUL, CRAMS industry has posted 48% CAGR between FY15-18 and is expected to witness a strong growth of over 25% over 2018-21.


jUL, The Government plans to

allocate US$70 million for local players to develop Biosimilars.

jSL, The domestic market is

expected to reach US$40 billion by 2030.

Notes: OTC - Over the Counter, * including biologicals, This is the latest data available.

Source: 1RNCOS, BMI, Datamonitor, Kemwell Biopharma, Chemical Pharmaceutical Generic Association, ICRA Report estimates,, DGCI&S

Going forward: Helped by the growth in domestic and export markets, Indias pharma industry is set to rise by 9-11% over the previous fiscal and is likely to touch US$41.9 billion in FY20.

While on the domestic front, the industry is expected to grow at around 12% and reach US$20.4- $20.8 billion during FY20. Exports are likely to touch US$21.1 billion in this fiscal with a growth rate of 8-10%, according to a study by Care Ratings.

The need for affordable healthcare in pharmemerging and developed nations are likely to support exports of branded generics to these countries. Also, rising per capita incomes in pharmemerging nations will contribute to the rise in branded generics exports from India.

In addition to this, patent expiry or loss of brand exclusivity is also expected to result in higher exports of generic drugs from India.

Medicine spending in India is projected to grow 9-12% over the next five years, leading India to become one of the top 10 countries in terms of medicine spending.

Active Pharmaceutic Ingredients (APIs)

All drugs are made up of two core components: the API, which is the central ingredient, and the excipients, the substances other than the drug that helps deliver the medication to your system. The API is the part of any drug that produces its effects. Some drugs, such as combination therapies, have multiple active ingredients to treat different symptoms or act in different ways.

Global API sector

The global API market witnessed steady growth in 2018 in terms of volume and value despite disruptions from the conventional supplier base i.e. China and India which impacted API availability and economics across the globe.

China holding the global API balance or otherwise: Chinas dominance in the global API space has resulted in a shift in manufacturing of intermediates and APIs to China. Many companies in other parts of the world curtailed API operations and invested in more lucrative product areas. This resulted in further concentration of API and intermediate manufacturing in China.

Recently, under the Blue Sky policy, the Chinese Government mandated the shutting down of API and intermediate operations. The resultant production shortfall impacted the price and supply of these products across the pharmaceutical value chain.

The hike in prices:


uncertainties and disruption arising out of China, a dominant global player of KSM (key starting material) due to environmental concerns, pushed their prices northward. This was further accentuated by supply disruption from certain KSM manufacturing units in India owing to environment concerns. This resulted in a price spike in KSM globally. In addition, the rise in global crude prices in the first half of 2018-19 exerted pressure on solvent prices (a crude derivative). This also cascaded into a hike in API costs.

Going forward: The global active pharmaceutical ingredients market was valued at US$ 165.74 billion in

2018 and is estimated to reach US$ 236.7 billion in 2024, witnessing a CAGR of 6.1% as per a study conducted by Market Research Firm Research and Markets 2019-24.

In terms of application the API market is been driven by the cardiology segment, owning to the vast population using cardiovascular diseases drugs (CVDs). It is expected that this segment will grow even further at 6.05% during 2019-24.

Indian API Market

The Indian pharma market is heavily dependent on imports from China for Key Starting Materials, intermediates and APIs for formulating its finished dosages. According to the Department of Pharmaceuticals, currently, over 70% of APIs are sourced from

China; for some specific APIs, the dependence is over 80-90%.

Performance: Exports of bulk drugs and intermediates from India grew in double digits during FY2019, a period that was marked by drug shortages in the global market owing to supply disruptions in China. Indias domestic market, too, was plagued by shortages of bulk drugs as the pharma industry depends on imports from China.

According to data released by the Pharmaceutical Exports Promotion Council (Pharmexcil), exports of bulk drugs and intermediates in FY19 stood at US$3.9 billion, up 10.5% over the previous year. The category contributes accounts for about 20.3% of Indias overall pharmaceutical exports.

Supplies from China were disrupted since the beginning of FY19 as Chinese companies were upgrading their plants or had shut them down due to environmental concerns. Supplies from China are more or less stable now. However, prices of some APIs have gone up as their cost of production increased after they took steps to address environmental concerns.

As a de-risking, the Government constituted a task force, headed by Minister of State Mr. Mansukh L. Mandaviya in 2018 to address the issue. Following the recommendations, the Government plans to establish three bulk drug parks at Andhra Pradesh, Gujarat and Himachal Pradesh through the public private partnership (PPP) mode.

The Company

Ind-Swift Laboratories is one of Indias leading API manufacturers with a global marketing footprint across regulated and pharmerging markets. The Companys products are supplied to globally-renowned an respected formulators operating in the country.

Its globally accredited manufacturing facilities at Derabasi and Jammu manufacture more than 50 APIs relevant to 18 therapeutic segments. It is one of the largest global players for Clarithromycin and Clopidogrel.

Operational performance

The Company continued to raise its operational bar as the team worked relentlessly on unlocking capacity from its existing infrastructure. These efforts enabled Ind-Swift in capitalising on emerging opportunities and increasing wallet share with its key clients. In addition, the team also worked on improving process stability and increasing productivity at its shopfloor.

The marketing team continued to scout for growth opportunities across traditional markets and new geographies. In doing so, the team widened the Companys footprint in pharmerging markets even as it secured additional business from regulated markets.

The R&D teams have worked patiently in improving the

Companys prospects in the global CRAMS space while strengthening Ind-Swifts competitive advantage in existing products in an otherwise competitive landscape. The team continued to build upon its product pipeline which, over time, would enlarge the Companys product basket.

Financial performance

(Based on Consolidated Financial


.A Revenue from operations declined marginally from 731.29 crore in 2017-18 to 724.42 crore in 2018-19. This decline was owing to the Turkey crisis which resulted in the devaluation of its currency. The Company supplies

Clarithromycin Coated granules to customers in Turkey. The situation is however improving slowly.

A Cost of materials consumed increased by 12% over the previous year owing to a spike in the prices of Key Starting Material globally.

jll EBITDA for the year increased from 157.25 crore in 2017-18 to 141.46 crore in 2018-19; Net Profit also jumped from 16.36 crore in 2017-18 to 48.52 crore in 2018-19 - a jump of about 196.58% primarily owing to an exceptional profit of 82. 94 crore accounted for in the Statement of Profit and Loss mainly on account of a onetime settlement with Banks and Financial Institutions.

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

In accordance with 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.

Debtors Turnover Ratio 2018-19 2017-18 Change Reason for change
Inventory Turnover Ratio 1.21 1.07 13.83%
Interest Coverage Ratio 1.87 5.25 (64.34)% Due to settlement with Banks and issue of NCDs and OCDs to the Tune of 424.50 crores and 74.50 crores respectively in 2018-19 and regular payment of interest on all the secured loans including NCDs & OCDs.
Current Ratio 2.53 0.88 187.64% With the settlement with banks, there was a major shift in the liability of the Company from current to long term , which resulted in improvement of the Current ratio.
Debt-Equity Ratio Operating Profit Margin (%) 3.06 20.64 3.84 18.87 (18.04)% 9.38%
Net Profit Margin (%) 6.37 2.18 191.77% With the overall improvement in EBIDTA; one time settlement with Banks, the Net profit of the Company increased significantly resulting in improvement in the ratio.
Return on Net Worth (%) 13.20 6.08 117.06% Overall improvement in the Net profit has resulted in the impovement in this ratio.

Human resource

Intellectual capital has been the corner stone of Ind-Swifts transformation. The Companys people-centric policies have cemented a strong bond between the Company and its team. The Company continued to enhance the intellectual capital of its team through an engagement program with reputed educational institutions and comprehensive learning & development calendar. Further, it intensified its people development initiatives (leveraging multiple tools) to enable the team to make a more meaningful contribution to operational improvement and new product development. Also, the management team members periodically interacted with the team to update them on the Companys performance and prospects going forward.

Internal Control Systems & Adequacy

At Ind-Swift, we are cognizant of any risk arising out of internal and external factors. On account of a sound internal control system we are vigilant regarding the evaluation of risks and hindrances in achieving our business goals. There are adequate checks and balances inbuilt in the processes along with diligent financial and operational reporting.

In order to strengthen the Internal Control architecture, the Company is using ERP (Enterprise Resource Planning) packages with built-in controls. The deployment of ERP technology has resulted in timely generation of financial reports, this in turn facilitates timely and indepth audit of control mechanism, legal, regulatory and environmental compliance. Further, the scope of Internal Audit also includes the periodic review and appraisal of internal controls and redressing any shortcomings in the process. Finally, the entire internal audit and the control mechanism are under the surveillance and custodianship of the Board of Directors.

Cautionary statement

Statements in this Management and discussion and Analysis describing the Ind- Swifts objectives, projections, estimates and expectations might be construed as forward looking statement within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied. Important developments that could affect the Company operations include a downward trend in the pharmaceutical industry, rise in input costs, exchange rate fluctuation and significant changes in political and economic environment, environment standards, tax laws, litigations and labour relations.