IOL Chemicals & Pharmaceuticals Ltd Management Discussions.


Global prospects remain highly uncertain over one year into the pandemic. New virus mutations and the accumulating human toll raise concerns, even as growing vaccine coverage lifts sentiment. Economic recoveries are diverging across countries and sectors, reflecting variation in pandemic- induced disruptions and the extent of policy support. The outlook depends not just on the outcome of the battle between the virus and vaccines it also hinges on how effectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis.

Global growth is projected at 6 percent in 2021, moderating to 4.4 percent in 2022. The projections for 2021 and 2022 are stronger than in the October 2020 WEO. The upward revision reflects additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility. High uncertainty surrounds this outlook, related to the path of the pandemic, the effectiveness of policy support to provide a bridge to vaccine-powered normalization, and the evolution of financial conditions. (Source: IMF)

The COVID-19 pandemic has caused major disruptions in the global economy. Economic activity has been hit by reduced personal interaction, owing both to official restrictions and private decisions; uncertainty about the postpandemic economic landscape and policies has discouraged investment; disruptions to education have slowed human capital accumulation; and concerns about the viability of global value chains and the course of the pandemic have weighed on international trade and tourism. As with previous

economic crises, the pandemic is expected to leave long- lasting adverse effects on global economic activity and per capita incomes. It is likely to steepen the slowdown in the growth of global potential output—the level of output the global economy can sustain at full employment and capacity utilization—that had earlier been projected for the decade just begun. The Governments are working towards effective reforms to help manage the economic slowdown and improve business sentiments.

The global economy headed into the COVID-19 pandemic after a decade of forecast disappointments and slowing potential output growth. The pandemic is expected to steepen the slowdown previously projected over the 2020s. However, ambitious policy reforms to support investment, improve education, and raise labour force participation could reverse much of the adverse impact of the pandemic on potential growth prospects over the next decade. Institutional reforms could strengthen investment and output growth prospects, as they have done in the past. (Source: World Bank)

Indian Economy Overview

In India, the pandemic hit the economy at a time when growth was already decelerating. Output is projected to fall by 9.6 percent in FY2020-21, reflecting a sharp drop in household spending and private investment. The pandemic disproportionately affected activity in the services sector (mainly in urban areas, such as retail), paralyzed consumption, and caused significant unemployment. Recent high frequency data indicate that the services sector recovery is gaining momentum. The informal sector, which accounts for four-fifths of employment, also suffered severe income losses. (Source: World Bank)

India recorded the real GDP (gross domestic product) growth of 0.4% in the third quarter of FY21, as per the NSOs (National Statistical Office) second advance estimates. This rise indicates V-shaped recovery progression that started in the second quarter of FY21.

As per Economic Survey 2020-21, Indias real GDP growth for FY22 is projected at 11%. The January 2021 WEO update forecast 11.5% increase in FY22 and a 6.8% rise in FY23. According to the IMF, in the next two years, India is expected to emerge as the fastest-growing economy in the world.

India is focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030, which is currently 30% and have plans to increase its renewable energy capacity from to 175 gigawatt (GW) by 2022.

India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report. It is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by 2040 as per a report by PricewaterhouseCoopers. (Source:

In its latest Asian Development Outlook (ADO) 2021, the Manila based ADB forecasts Indias economic growth to moderate to 7.0% in FY2022 as base effects disappear. The economy is expected to have contracted by 8.0% in FY2020 in line with the governments second advance estimate. The IMF recently estimated the Indian economy to grow by 12.5% in the current financial year. The forecast assumes that vaccines are deployed extensively across the country and the second wave of the coronavirus disease (Covid-19) pandemic is contained.

Indian Pharmaceutical Industry

Indian pharmaceutical sector supplies over 50% of the global demand for various vaccines, 40% of the generic demand

for US and 25% of all medicines for UK. India contributes the second-largest share of pharmaceutical and biotech workforce in the world. According to the Indian Economic Survey 2021, the domestic market is expected to grow 3X over the next decade. Indias domestic pharmaceutical market is estimated at US$ 41 billion in 2021 and likely to reach US$ 65 billion by 2024 and further expand to reach ~US$ 120-130 billion by 2030.

Indian drugs are exported to more than 200 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. It is expected to expand even further in the coming years. The Indian pharmaceutical exports, including bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgical, reached US$16.28 billion in FY20. Indias drugs and pharmaceuticals exports stood at US$20.14 billion in FY21 (until January 2021).

Pharma Vision 2020 by the Governments Department of Pharmaceuticals aims to make India a major hub for end-to- end drug discovery. The Indian drugs and pharmaceuticals sector has received cumulative FDI inflows worth US$ 17.75 billion between April 2000 and December 2020.

To achieve self-reliance and minimise import dependency in the countrys essential bulk drugs, the Department of Pharmaceuticals initiated a PLI scheme to promote domestic manufacturing by setting up greenfield plants with minimum domestic value addition in four separate Target Segments with a cumulative outlay of Rs. 6,940 crore (US$ 951.27 million) from FY21 to FY30.

Under Union Budget 2021-22, the Ministry of Health and Family Welfare has been allocated Rs. 73,932 crore (US$ 10.35 billion) and the Department of Health Research has been allocated Rs. 2,663 crore (US$ 365.68 billion). The government allocated Rs. 37,130 crore (US$ 5.10 billion) to the National Health Mission. PM Aatmanirbhar Swasth Bharat Yojana was allocated Rs. 64,180 crore (US$ 8.80 billion) over six years. The Ministry of AYUSH was allocated Rs. 2,970 crore (US$ 407.84 million), up from Rs. 2,122 crore (US$ 291.39 million).

India plans to set up a nearly Rs. 1 lakh crore (US$ 1.3 billion) fund to provide boost to companies to manufacture pharmaceutical ingredients domestically by 2023. (Source:

Indian Chemical Industry

The Indian chemicals industry stood at US$ 178 billion in 2019 and is expected to reach US$ 304 billion by 2025 registering a CAGR of 9.3%. The demand for chemicals is expected to

expand by 9% per annum by 2025. The chemical industry is expected to contribute US$ 300 billion to Indias GDP by 2025.

The specialty chemicals constitute 22% of the total chemicals and petrochemicals market in India. The demand for specialty chemicals is expected to rise at a 12% CAGR in 2019-22. The petrochemicals demand is expected to record a 7.5% CAGR between 2019 and 2023, with polymer demand increasing at 8%. The Indian agrochemicals market is expected to register an 8% CAGR to reach US$ 3.7 billion by FY22 and US$ 4.7 billion by FY25.

The government has started various initiatives such as mandating BIS-like certification for imported chemicals to prevent dumping of cheap and substandard chemicals into the country.

The Indian government recognises chemical industry as a key growth element and forecast to increase share of the chemical sector to ~25% of the GDP in the manufacturing sector by 2025.

Despite the current pandemic situation, the Indian chemical industry has numerous opportunities considering the supply chain disruption in China and trade conflict among the US, Europe and China. Anti-pollution measures in China will also create opportunities for the Indian chemical industry in specific segments.

Additional support, in terms of fiscal incentives, such as tax breaks and special incentives through PCPIRs or SEZs to encourage downstream units will enhance production and development of the industry. The dedicated integrated manufacturing hubs under Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policy to attract an investment of Rs. 20 lakh crore (US$ 276.46 billion) by 2035. (Source:

2. Opportunities and Threats Opportunities

1. Growing domestic and international market provides potential for growth.

2. Growth of speciality chemicals like Ethyl Acetate, a green solvent, is remained robust due to its diverse use in the various industries.

3. Increased visibility of the company resulting in penetration in global market.

4. Rising demand for affordable healthcare facilities is driving the market for generic medicine throughout the world.


1. Competition in generics in domestic and international market.

2. Disruptions caused by the current pandemic.

3. Increase in cost owing to heightened safety measure undertaken for running the plant with staggered manpower.

3. Business Segment Performance and outlook

The Company is one of the leading and significant player in Active Pharmaceutical Ingredient (API) player and specialty chemicals markets. The Company is a manufacturer and global supplier of APIs such as Ibuprofen, Metformin, Clopidogrel, Lamotrigine, Pantoprazole and Fenofibrate and other APIs and has significant presence across major therapeutic categories. Demand for APIs is showing continuous increase due to growing incidences of lifestyle diseases, rising demand for affordable healthcare delivery systems.

Specialty Industrial Chemicals segment of the Company includes manufacturing of Ethyl Acetate, Iso Butyl Benzene (IBB), Mono Chloro Acetic Acid (MCA) and Acetyl Chloride. Ethyl acetate have application in diverse important industries like pharmaceuticals, ink industry, flexible packaging, adhesives, surface coatings, flavours, paints & lamination and essences etc. The demand for the product is driven by a wide range of end use industries.

The Company has its manufacturing plants situated at Village: Fatehgarh Chhanna, District: Barnala, Punjab. The Companys R&D Centre, approved by Department of Scientific and Industrial Research (DSIR) is equipped with advanced and analytical instruments. The Company also has a captive co-generation unit with capacity of 17 MW to meet power requirements.

The Company has an excellent team of technical and commercial professionals with expertise in pharmaceutical and chemical manufacturing and marketing.

4. Risks and Precautions

Below is a brief analysis of risk and precautionary measures: Regulatory risk

Risk: The Company operates in a highly regulated pharmaceutical industry. Any lapse to comply regulations may adversely impact its operations.

Precaution: Regular internal and external inspections and audits are being made to ensure compliance of regulations of Indian and global regulatory authorities.

Operational risks

Risk: Increase in raw material prices could impact the performance of the Company.

Precaution: The Company manages it by entering into regular agreements with its suppliers to ensure the continuous supply of raw material and proper utilisation of resources. . Moreover the Company has in house backward integrated manufacturing facilities to ensure continuous supply of major raw material used in bulk drugs.

Debt risk

Risk: Possibility of default to meet its obligations because of unavailability of funds to meet debt and operational requirements.

Precaution: As on date, there is no amount outstanding against any Term Loan for the Company.

Further, in order to ensure adequacy of its funding, cash flow forecasts are prepared regularly and appropriate action is taken.

Credit risk

Risk: Company debtors are unable to meet their obligations on time.

Precaution: Company has established internal policies and controls to determine credit worthiness and reliability of existing and potential customers, which are reviewed on periodical basis.

Geographic risk

Risk: A significant concentration in a particular market could be a risk in the event of downturn in that region.

Precaution: Company has network of customers in most of states of India. The Company has also expanded its customer base in about 80 countries to mitigate geographical risk. Moreover, Company caters different industrial users of the same product.

Technological risk

Risk: Technological advancement could result in asset obsolescence warranting a high cost of replacement.

Precaution: Company is using the latest and state of the art technology in the manufacturing, processing and quality control measures and keeps itself abreast of latest update in technology and adopting the same to remain efficient in productivity and cost minimization. Moreover the Company has 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

Risk: Non-compliance with environmental regulatory issue might affect operations.

Precaution: Company conducts regular internal checks and audits to ensure compliance with environmental regulations. The Company has obtained all the required environmental consents and permissions. 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 a qualified Doctor. Moreover the Company has obtained OHSAS 18001:2007.

Competition risk

Risk: The Company is exposed to competition from indigenous as well as foreign players.

Precaution: The Company is managing the competition risk by continuously improving the quality and capacity of products and maintaining long term relationship with its customers by providing better services to them. The quality control department of the Company has implemented a range of quality assurance procedures to providing high quality products to its customers.

Foreign exchange risk

Risk: Company is exposed to foreign exchange risk with respect to foreign currencies, denominated mainly in US dollars, on revenue and supplies.

Precaution: The Company regular monitors its exposure to foreign exchange risk and takes hedging whenever required, but, its foreign currency risk is naturally hedged as the Company is importing and exporting the goods.

Human Capital Risk

Risk: Acquisition and retention of right talent is critical to maintain desired operational standards.

Precaution: The Company has a dedicated team of professionals who not only look after the recruitment and training of human capital but also provide better working environment and development opportunities to them for their self-development.


Most of the movable as well as immovable 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 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. Profit and Loss Account


Total income has increased to Rs. 1991Crore during the year of review as compared to Rs. 1910 Crore during the previous year.

Segmental Revenue

Pharma segment contributed about 60% of total revenue for the financial year 2021 against 64% contribution in financial year 2020. The Chemicals Segment contributed about 40% to total revenue in financial year 2021 against 36% in financial year 2020.


EBITDA of the Company has increased to Rs. 616 Crore during year under review from Rs. 590 Crore during the previous year due to increase in the operation efficiencies.

Net Profit after tax

The Company has earned profits after tax of Rs. 445 Crore in the year under review against profits after tax of Rs. 361 Crore during the previous year.

B. Balance Sheet

Share Capital

Authorized share capital of the Company is Rs. 80 Crore divided into 8,00,00,000 equity shares of Rs. 10/- each as on 31st March 2021. Paid-up share capital of the Company is Rs. 58,70,55,020/- consisting of 5,87,05,502 equity shares of Rs. 10/- each. Promoters hold 43.7 % and public shareholding is 56.30 % of the paid up share capital of the Company.

Reserves and Surplus

Reserves and surplus at the end of the year under review stood at Rs. 1202 Crore against Rs. 757 Crore at the end of previous year.

Net Worth

Net worth of the Company has improved to Rs. 1260 Crore at the end of the year as against Rs. 814 Crore at the end of previous year.


Long term secured borrowing at the end of financial year 2021 were NIL. Unsecured long term borrowings at the end of financial year 2021 stood at NIL. As on date, there is no amount outstanding against any Term Loan for the Company.

Short term secured borrowing at the end of financial year 2021 were NIL against Rs.56 Crore at the end of financial year 2020.


Non- Current Assets

Total Fixed assets including Capital work in process increase to Rs. 588 Crore as on 31st March 2021 from Rs. 499 Crore as on 31st March 2020, net of depreciation and additions.

Current Assets and Current Liabilities

The Company had inventories of Rs. 295 Crore as on 31st March 2021 against Rs.188 Crore as on 31st March 2020. Trade Receivable amounted to Rs. 300 Crore as on 31st March 2021 as compared with Rs. 272 Crore as on 31st March 2020. The trade payables increased to Rs. 239 Crore as on 31st March 2021 as compared with Rs.180 crore as on 31st March 2020. The changes are in line with increase in overall operations.

Cash flows

The Companys net cash flow from operating activities for the year ended 31st March 2021 amounted to Rs. 380 Crore against net cash flow used in operating activities Rs. 471 Crore during the previous year.

The Companys net cash used in investing activities amounted to Rs. 317 Crore during the year ended 31st March 2021 against Rs.184 Crore during the previous year.

During the year, net cash used in financing activities amounted to Rs. 58 Crore as against net cash flow from financing activities Rs. 272 Crore during the previous year.

Analysis of Ratios:

Ratio Year ended 31 March 2021 Year ended 31 March 2020 Remarks
Operating Profit Margin (%) 30.94% 30.88% Marginal increase
Net Profit Margin (%) 22.32% 18.91% Increase in profit margin and lower tax rate
Return on Net Worth (%) 42.87% 56.11% Increase in average net worth
Trade receivable turnover (Days) 56 52 Increase due to market trend
Inventory turnover ratio (times) 6.61 10.10 Increase in inventory at the fade end of the year
Current ratio 3.52 2.43 Increase in net working capital with increase in profit after tax and retained earnings

7. Human Asset

The Company has a team of 2,069 strong members as on 31st March 2021. The Company emphasizes 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 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.

8. Cautionary Statement

Statement in Management Discussion and Analysis describing Companys objectives, projections, estimates and expectations may be "Forward Looking Statements" within 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/-
Place : Ludhiana Varinder Gupta Rajender Mohan Malla
Dated: 4th June 2021 Managing Director Chairman
DIN -00044068 DIN-00136657