IOL Chemicals & Pharmaceuticals Ltd Management Discussions.

1. Industry Structure and Development World Economy

Global growth is set to reach 3.5 percent this year and 3.6 percent in 2018, IMF has raised its growth forecasts slightly from estimates released last October as macro economic conditions eased for commodity exporters and investment levels grew in advanced economies. However, the IMF warned that risks to global growth remain to the downside with structural issues holding back economic development. With persistent structural problems—such as low productivity growth and high income inequality—pressures for inward-looking policies are increasing in advanced economies. These threaten global economic integration and the cooperative global economic order that has served the world economy, especially emerging market and developing economies as well. (Source:IMF)

Indian Economy

According to IMF World Economic Outlook Update (January 2017), Indian economy is expected to grow at 7.2 per cent during FY2017 and further accelerate to 7.7 per cent during FY2018. Corporate earnings in India are expected to grow by over 20 per cent in FY 2018 supported by normalisation of profits, especially in sectors like automobiles and banks, while GDP is expected to grow by 7.5 per cent during the same period, according to Bloomberg consensus. The Government of India, has approved the Central Goods and Services Tax (CGST), Integrated GsT (IGST), Union Territory GST (UTGST), and Compensation Bill to promote ease of doing business in the country.

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Chemical Industry

Indian chemical industry is the 3rd largest producer in asia and 6th by volume in the world. By 2025, the Indian chemical industry is projected to reach USD403 billion. The chemical industry in India is a key constituent of Indian economy, accounting for about 2.11 per cent of the GDP. India accounts for approximately 16 per cent of the world production of dyestuff and dye intermediates, particularly for reactive acid and direct dyes. India is currently the worlds third largest consumer of polymers and third largest producer of agrochemicals. India specialty chemical market is expected to reach USD70 billion by 2020.


Pharmaceutical Industry

The Indian pharmaceuticals market is the third largest in terms of volume and thirteenth largest in terms of value. India is the largest provider of generic drugs globally with the Indian generics accounting for 20 per cent of global exports in terms of volume. Of late, consolidation has become an important characteristic of the Indian pharmaceutical market as the industry is highly fragmented. The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and 2020, will outperform the global pharma industry, which is set to grow at an annual rate of 5 per cent between the same period. The market is expected to grow to US$ 55 billion by 2020, thereby emerging as the sixth largest pharmaceutical market globally by absolute size. Branded generics dominate the pharmaceuticals market, constituting nearly 80 per cent of the market share (in terms of revenues).

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Government Initiatives

The Government of India unveiled ‘Pharma Vision 2020 aimed at making India a global leader in end-to-end drug manufacturing.

Approval time for new facilities has been reduced to boost investments..

The Government of India plans to incentivise bulk drug manufacturers, including both state-run and private companies, to encourage ‘Make in India programme and reduce dependence on imports of Active Pharmaceutical Ingredients (API), nearly 85 per cent of which come from China.

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2. Opportunities and Threats Opportunities

1. Major raw materials for drug division are produced in house.

2. Large domestic market, with good potential for growth.

3. Technically and qualified trained manpower.

4. Forward Integration of Products.

5. Applicability of GST will boost business sentiments in the country.


1. Cost of finance in India is very high.

2. Countrys Infrastructure facilities are not of world class. resulting in delays and slow movement of goods.

3. Business Segment Performance and Future Prospects

Our operations are broadly comprises of Bulk Drugs; APIs and specialty industrial chemicals.

Our APIs segment includes manufacturing of mainly Ibuprofen. Our Specialty Industrial Chemicals segment includes manufacturing of Ethyl Acetate, Iso Butyl Benzene (IBB), Mono Chloro Acetic Acid (MCA) and Acetyl Chloride.

Bulk Drugs

Bulk Drugs are commonly known as Active Pharmaceutical Ingredients (APIs). APIs are mixed with other components to produce tablets, capsules or liquids.

We are increasing our APIs product portfolio and improving our cost competitiveness through efficient manufacturing processes and systems and expanding relationships with major Indian and foreign generic companies for sale of our APIs. Our APIs are exported worldwide. Our key markets are Europe, Latin America, Africa, and the Middle East. Our API customers are leading global generic companies.

We have also received the approval from eminent drug authority i.e. United State Food and Drug Authority (USFDA) in July 2015 for Ibuprofen manufacturing facilities. Indeed ,this approval will enable the Company to enter into the United State . We have been accredited from various regulatory authorities across the World like, USFDA, CEP certification, EUGMP & WHO GMP.

Specialty Industrial Chemicals

Ethyl Acetate is having varied uses in different industries like pharmaceuticals, flexible packaging and printing ink manufacturing, paints and adhesives etc. Our key markets in chemicals are African countries, Middle East, SAARC Countries and Russia. Since inception, we have been gradually enhancing our manufacturing capacities. Moreover, other chemicals produced by the Company such as Iso Butyl Benzene (IBB), Mono Chloro Acetic Acid (MCA) and Acetyl Chloride are used in manufacturing of Ibuprofen.

All the products manufactured in our plants are having continuous demand from different industries in domestic as well as foreign market. To tap the opportunity of increase in demand in the market, we are increasing our capacity utilization by streamlining production processes.

4. Risks and Concerns

The main risks to which the Company is exposed as well as approach taken by the management to control and mitigate those risks is given below:

Operational risks

The performance of the Company depends upon the uninterrupted supply of raw materials and regular lifting of its finished products. The Company manages to enter into long term agreements to ensure the continuous supply of raw material and lifting of its finished products to achieve the desired production level and proper utilization of resources . Moreover the Company has backward integrated manufacturing facilities to ensure continuous supply of major raw material in house to bulk drugs.

Competition risk

The Company is exposed to competition from indigenous as well as foreign players. We are controlling the competition risk by continuously improving the quality of products and maintaining long term relationship with our customers by providing better services to them. The quality control department implemented a range of quality assurance procedures to providing high quality products to our customers.

Geographic risk

A significant dependence on a particular market could be a risk in the event of a selective downturn in that region. So the Company has network of customers in most of states the country. Company has also expanded its customer base in about 50 countries to mitigate geographical risk.

Technological risk

Technological advancement could result in asset obsolescence warranting a high cost of replacement. Company is using the latest and state of the art technology in the manufacturing, processing and quality control measures and keeps itself in touch with the latest updation in technology and adopting the same to remain efficient in productivity and cost minimization. Moreover the Company have DSIR recognized Research and Development cell which is very active in developing and validating new processes for existing products and development of new products.

Environmental Health and Safety Risk

Today Governments of all the countries around the world are cautious about the environment safety. Non compliance with environmental regulatory issue might affect operations. Company conducts periodic checks to compare effluents and stack emissions and comply with all applicable rules and regulations to protect the environment. Moreover, Company has also obtained ISO 14001:2004 Certification.

Health and Safety of the Workforce is priority of the company. IOLCP committed itself to manage it through occupational health and safety management tools, dedicated dispensary at factory and qualified Doctor. Moreover the Company has obtained OHSAS 18001:2007.

Credit risk

Credit risk is associated with losses that occur when debtors are unable to meet their obligations on time. Company has established internal policies and controls to determine credit worthiness and reliability of existing and potential customers, which are reviewed on periodical basis. Moreover, Company also takes the insights of the customer from market sources and also obtains credit worthiness reports from Dun & Bradstreet and MIRA whenever required.

Liquidity risk

This refers to the possibility of default of a Company to meet its obligations because of unavailability of funds to meet the operational requirements. In order to ensure adequacy of its funding, cash flow forecasts are prepared regularly and appropriate actions are taken on pro active basis.

Foreign exchange risk

Company is exposed to foreign exchange risk with respect to foreign currencies, denominated mainly in US dollars, on revenue and supplies. Although the foreign currency risk is naturally hedged as the Company is importing and exporting the goods . However, the Company does regular monitoring of exposures and takes hedging whenever required.

Human Capital Risk

Acquisition and retention of right talent is critical to maintain desired operational standards. The Company has a dedicated team of professionals who is not only looks after the recruitment and training of human capital but also takes care to provide better working environment and development opportunities to them for their self progress.


All the insurable immovable as well as movable assets of the Company including stocks are adequately insured and all insurance policies are in force as on the date of the report.

5. Internal Control System and its adequacy

The Company has aligned its current systems of internal controls including financial controls with the requirement of Companies Act 2013. The Companys internal controls are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorisation and ensuring compliance of corporate policies.

The Company uses best IT system to record data for accounting, consolidation and management information purposes and connects to different locations for efficient exchange of information. The Audit and Risk Management Committee reviews reports submitted by internal auditors regularly and suggest the improvements from time to time which are being implemented by the Company.

6. Financial Performance

A. Statement of Profit and Loss Revenue

Total revenue from operations has increased to 774.37 crore during the year of review as compared to 645.44 crore during the previous year. FOB value of Export sales of the Company has also increased from 131.67 crore to 195.99 crore.

Segmental Revenue

Bulk drugs segment contributed about 56% of total revenue for the financial year 2017 against 53% contribution in financial year 2016. The Chemicals Segment contributed about 44% to total revenue in financial year 2017 against 47% in financial year 2016.


EBITDA of the Company has increased two-fold to 102.84 crore during year under review from 52.60 crore during the previous year due to increase in the operation efficiencies.

Net Profit after tax

The Company has turnaround during the year under review and earned profits after tax of 4.23 crore in the year under review against net loss of 40.03 crore during the previous year.

B. Balance Sheet Share Capital

Authorized share capital of the Company is 80 crore divided into 5,80,00,000 equity shares of 10/- each and 2,20,00,000 Preference shares of 10/- each as on 31 March 2017. Paid- up share capital of the Company is 56,20,55,020/- consisting of 5,62,05,502 equity shares of 10/- each.

Reserves and Surplus

Reserves and surplus at the end of the year under review stood at 133.15 crore against 128.92 crore at the end of previous year .The increase is due to net profit of 4.23 crore earned during the year under review.


Long term secured borrowing at the end of financial year 2017 were 283.41crore against 296.26 crore at the end of financial year 2016. Unsecured long term borrowings at the end of financial year 2017 stood at 23.26 crore against 19.27 crore at the end of financial year 2016.

Short term secured borrowing at the end of financial year 2017 were 140.77 crore, against 137.09 crore at the end of financial year 2016.


Non- Current Assets

Total Fixed assets including Capital work in process declined from 403.81 crore as on 31 March 2016 to 396.06 crore as on 31 March 2017, net of depreciation and additions.

Current Assets and Current Liabilities

The Company had inventories of 262.62 crore as on 31 March 2017 against 227.94 crore as on 31 March 2016. Trade Receivable amounted to 112.77 crore as on 31 March 2017 as compared with 87.26 crore as on 31 March 2016. The trade payables increased to 149.84 crore as on 31 March 2017 as compared with 115.78 crore as on 31 March 2016.The changes are in line with increase in overall operations.

C. Cash flows

The Companys net cash flow from operating activities for the year ended 31 March 2017 amounted to 77.89 crore against net cash flow used in operating activities 17.70 crore during the previous year.

The Companys net cash used in investing activities amounted to 22.59 crore during the year ended 31 March 2017 against 27.37 crore during the previous year.

During the year, net cash used in financing activities amounted to 54.52 crore as against net cash flow from financing activities 9.27 crore during the previous year.

7. Contribution to National Exchequer

The Company has contributed a sum of 62.53 crore as compared to 63.79 crore during the previous year to National Exchequer by way of central excise duty in addition to contribution through other direct and indirect taxes.

8. Human Assets

The Company has a team of 1,129 strong members as on 31 March 2017 consisting of 7.53% Professionals, 20.28% Post Graduates/ Graduates, 18.78% Diploma/ITI and 53.41% others. The Company stresses on all around development of the human resources. The Companys HR policies entail injecting Company with a high degree of expertise, professional depth, dynamism and power of the youth.The Company belief in respect of human resources and dignity of labour and consider human resources very valuable and vital assets for the development of the organization. We provide managerial and leadership development programmes across all levels to improve our business practices. The Company gives due importance to talent acquisition and thus have a mix blend of both campus and latent hiring. We believe in nurturing of talent and companys practices root for the same by providing them strategic training and development programs.

9. Cautionary Statement

Statement in Management Discussion and Analysis describing Companys objectives, projections, estimates and expectations may be "Forward Looking Statements" with in the meaning of applicable laws & regulations. Actual results may differ materially from those expressed or implied. Important factors that could make a difference to companys operations include but are not restricted to the economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which Company operates, changes in the Government regulations, tax laws, and other statues, as also other incidental factors.

For and on behalf of the Board
Sd/- Sd/-
Varinder Gupta Dr M A Zahir
Place : Ludhiana Managing Director Chairman
Dated : 18 August 2017 DIN -00044068 DIN-00002973