jagsonpal pharmaceuticals ltd Management discussions

Economic Overview

Global Economy

According to International Monetary Fund (IMF), the world economy is expected to grow by 2.8% in 2023, 0.6% lower than the 2022 growth. This decline is influenced by slower growth in China, a major exporter to many economies, a trade-war brewing between China-US, and has been exacerbated by ongoing trade fallout from Russia-Ukraine conflict resulting into supply chain disruptions. The IMF noted that inflation continues to be persistent, although it is expected to decline slightly in 2023 due to falling food and energy prices.

Furthermore high levels of global corporate and household debt pose a significant risk to the global economy, impending to higher bankruptcies, rising unemployment and lower investments. Despite these challenges, developing economies are expected to grow faster than advanced economies.¹

Indian Economy

Indias GDP growth for FY2023 is projected to be 7.0%, marking a decrease from the previous years 9.1%. However, it is worthwhile to take cognizance of the fact that India maintained its pole position of being the top-performing major economy during the year. This decline can be attributed to several factors, including higher-than-expected retail inflation caused by global input cost inflation persistent throughout the year along with unusual weather patterns in India. Additionally, India experienced a slowdown in exports due to sluggish global trade.

On the flip side, domestic consumption provided the necessary support to local businesses, supported by widespread vaccine coverage that enabled contact-based activities to resume.²

The Reserve Bank of India (RBI) forecasts Indias FY2024 GDP growth to be 6.5%, with global trade disruptions and inflation posing a threat. However, Indias continued focus to improve physical infrastructure has supported the domestic economy. The push for better public digital infrastructure acted as a catalyst to the domestic economy, providing opportunities and growth prospects for business owners.

Global Pharmaceutical Industry³

The Global Pharmaceutical Industry promptly responded to the COVID-19 pandemic through rapid development and scaling up of vaccine production. Despite uncertainties particularly ones engendering from economic and geopolitical circumstances, the industry is expected to regain its pre-pandemic growth rates by 2024. The global pharmaceutical market is projected to grow at a CAGR of 3-6% between 2023 and 2027 and is expected to reach an impressive market size of ~$1.9 trillion. Developed markets will grow at a slower rate than emerging markets, with the US expected to oscillate between -1 to 2% CAGR and demand in Europe is anticipated to be driven by higher consumption of generics and biosimilars. On the other hand, the Asia-Pacific region will experience steady growth, while China may see a slowdown in growth.

Global Spending Growth Across Regions: 2019-2027

Region	2019-2027 CAGR
Global	6%
North America	5.5%
Asia-Pacific	8.5%
Africa & Middle East	7.5%
China	5%
India	10.5%

Indian Pharmaceutical Industry

With a population of over 1.3 Billion, India represents a vast opportunity for the global pharmaceutical industry. The country is worlds leading supplier of pharmaceutical products along with being a prominent player in the global vaccine market. Over the years, domestic industry has rapidly expanded and today is a crucial player in the global pharmaceutical landscape. The industry has several participants, including multinational corporations, domestic companies, and regional players.

The nation is known for its robust manufacturing capabilities and cost-effective production which led to its emergence as a major player in the overall value chain. There is an expectation that spending on pharmaceuticals will increase with a CAGR of 7.5-10.5% from 2023-27, resulting in a total market size of US$ 35-39 Billion.

The country has built strong research and development capabilities. Many multinational corporations have invested in the country in-lieu of the competitive advantage in terms of cost-efficiency which is evident from the fact that the nation is home to largest number of USFDA compliant pharmaceutical manufacturing sites outside the US. Major offering includes generic drugs, OTC medicines, bulk drugs, vaccines, contract research & manufacturing, biosimilars and biologics.

better healthcare. This demographic shift drives the need for innovative healthcare solutions.

Changing Lifestyle

The healthcare market faces increasing demand for pharmaceutical solutions to combat chronic diseases caused by sedentary lifestyles, unhealthy eating habits, and environmental factors.

Improving Purchasing Power

Expanding middle-class population and rising income will drive demand for healthcare solutions, increasing purchasing power and higher medication consumption.

Health Insurance and Infrastructure

Government-sponsored programs increase healthcare insurance penetration, making healthcare affordable and accessible, and increasing demand for pharmaceutical products.

Company Overview

About Jagsonpal Pharmaceutical

Jagsonpal Pharmaceuticals Limited is a Delhi-based pharmaceutical company. Founded in 1978, the Company has a proven track record of 40+ years of catering to the domestic pharmaceutical market. The Company has a robust portfolio of drugs focusing on the Gynaecology and Orthopaedic segments. Over the years, the Company has successfully established multiple brands that today hold market-leading position in respective segments. Today, while we are ranked 81^st in the Indian Pharmaceutical Industry, we have a much stronger ranking of 13^th in our covered market, reflecting our relative strength amongst the covered therapies.

Resilient Domestic Standing

Gynaecology

During the last few years, the Gynaecology segment has demonstrated an impressive growth of 11%, outpacing the overall pharmaceutical industry. This pace of growth has accelerated in the last two years where market grew by 14% YoY reaching Rs.103 Billions. This has been made possible on the back of contributions made by new launches, volume growth and price hikes which grew by 5%, 4% and 5% respectively during the last two years. With the aim of addressing diverse health concerns faced by women, the Company commercialised a range of products. Through this dedicated segment, it strives to provide affordable healthcare solutions which are accessible to women nationwide, enabling them to overcome health challenges and enjoy a healthier lifestyle.

Orthopaedics

Recognising the increasing prevalence of pain management conditions, the Company has taken a proactive step by launching a dedicated segment to address the related challenges. Through this initiative, the Company aims to play a crucial role in promoting an active lifestyle for individuals. In the past, the pain and analgesics market witnessed sustained growth of 11% over the last few years. This growth momentum further accelerated in the last two years, with an impressive 22% and 12% increase, surpassing the growth rate of overall Indian Pharmaceutical market. As a result, the market reached an impressive Rs.160 Billion in FY2023.

First Time Innovations Introduced by Jagsonpal

The Company has a well-established track record of introducing innovations for the Indian consumer and has focussed its efforts on portfolio enhancement of differentiated products such as -

o Indocap - Pioneered Indigenised Indomethacin production

o Indocap SR - First Sustained-Release formulation of Indomethacin

o Metadec Inj, Maintane Inj - Pioneered concept of Pilfer- Proof Sterile Unipack injectables

o Doxypal DR-L - First Delayed-Release formulation of Doxycycline with Lactic Acid Bacillus

o Lycored

35 Clinical trials covering a wide variety of medical specialties, including Oncology, Gynecology, Cardiology, Ophthalmology, Dentistry and Medicine with 56 research publications reputed journals

First sugar-free antioxidant syrup in India

o EndoReg - Launch of Dienogest for medical management of endometriosis

o Verena gel - Pioneered Vaginal Use of Nanosilver Gel with applicator

o Divatrone - Micronised Dydrogesterone with BA/ BE, 36-month shelf-life

Employees

The Company strongly believes that its employees are its truest wealth, its biggest assets. The Company promotes a culture of fairness and believes in providing equal employment and growth opportunities to all individuals.

	Male	Male %	Female	Female %	Total Employees
Permanent Employees	925	98%	15	2%	940
Other than Permanent Employees	7	100%	0	0%	7
Total Employees	932	98%	15	2%	947

The Company regularly conducts workshop aimed at knowledge and skill-set enhancement. The Company through its Individual Development Plan aims to support individuals for the future career growth. Besides skill set, the physical and mental well-being of employees is of paramount importance. The Company regularly conduct yoga sessions on reducing stress for its employees in addition to training sessions on scientific knowledge, communication and managerial skills.

All employees have been provided health and life insurance through Group Mediclaim Insurance, Term Life Insurance and Group Accidental Insurance policies.

As part of preventive healthcare program, the following initiatives are being offered:

o Health & Lifestyle Management Camp

o Oral Hygiene camp

o Ergonomics at Workplace Workshop

o Stress & Anger Management

o Gynaecologist Workshop pertaining to women-specific health issues.

The Company believes in providing a healthy and open work environment where employees act ethically and speak up against malpractices without any inhibitions.

Policies & Processes:

o Recruitment Policy: Jagsonpals recruitment policy ensures that all candidates get equal opportunity. Recruitment criteria are well-defined to shortlist candidates for specific job role. Once the candidate has cleared the preliminary rounds of interview, a thorough reference check is done prior to finalising the candidate. Proper assessment forms are filled by each interviewer during the interview. Panel interviews are conducted for critical positions.

o Performance Appraisal Policy: Jagsonpal has a c transparent Performance Management System which ensures fair evaluation along with reward & recognition for the performing employees. At the beginning of the financial year, Key Performance Objectives (KPOs) are discussed with employees in accordance with their job responsibilities. The respective functional heads ensure that the said KPOs are quantifiable to the extent possible and are aligned with organisational and departmental goals. During the year, the employee receives regular feedback on improvement areas from their reporting manager. During the evaluation phase performance of the employee is evaluated against mutually agreed KPOs.

o Group Mediclaim Insurances (GMP) Policy: All

employees are mandatorily covered under Group Mediclaim Policy. Also, there is an option to extend the coverage for their spouse, kids and parents as well, at a very reasonable premium. Besides cashless treatment, the policy covers all pre-existing diseases without any waiting period.

o EDLI and Term Life Insurance Policies: These policies cover all employees and are meant to support a deceased family in case of an unfortunate incident.

o Group Accidental Insurance Policy: This policy is applicable in case any employee meets an accident. Besides allowance and support during bed rest, the nominee of an employee is provided with financial support in case of incapacitation.

Overview Reports Statements

Whistle-blower Policy: The policy provides a mechanism to report instances of unethical behavior, actual or suspected fraud or violation of the companys code of conduct and ethics policy. The concerned ethics counsellor deals with such matters with utmost priority, sensitivity and confidentiality. The Company, condemns any kind of discrimination, harassment, oppression or any other unfair employment practice adopted against Whistle Blowers. The violation shall be reported to the concerned ethics counsellor as per the policy and accordingly required disciplinary inquiry will be initiated.

Prevention, Prohibition and Redressal of Sexual Harassment of Women at Workplace Policy: The

Company has zero tolerance for sexual harassment at the workplace and is in compliance with the provisions relating to POSH Act (Prevention, Prohibition and Redressal of Sexual Harassment of Women at Workplace), 2013. Jagsonpal has an Internal Complaints Committee for sensitively investigating POSH-related matters. The Company also has various training modules and awareness programmes which sensitise its employees on such issues.

All the concerns pertaining to any misconduct or violation of ethics are addressed seriously and formal investigations are conducted wherever required. If investigation finding testify to the acquisitions, necessary action is taken in accordance with the Companys guidelines.

Threats, Risks and Concerns Risk Management

In line with the requirements under the SEBI LODR, the Company has constituted a Risk Management Committee of the Directors which periodically convenes and evaluates the risk mitigation efforts and means to strengthen the same.

The company has identified the following risks along with mitigation plan.

Risk Areas	Potential Risk	Mitigation Plan/ Remarks
Structural Risk	O The government regulates prices of pharmaceutical products to ensure product affordability and releases a National List of Essential Medicines (NLEM) to regulate prices O Jan Aushadhi Scheme and government push to prescribe generic medicines	O Company regularly launches products as line extensions to reduce the business dependency on existing NLEM products O Company focus on niche molecules as against the mass marketed portfolio under the scheme
Operational Risk	o Divisionalisation can impact business in the short term o Migration of distribution setup from Depot to C&FA model	o The Company has worked out a comprehensive execution plan to minimise any short-term impact while focussing on the long-term benefits o 15 C&FA have been made operational with the last one completed on 1st May
Access Security	Unauthorised access	o Firewalls and Antivirus installed o Password-protected systems have been installed to mitigate any untoward incident
Data management	Back-up and recovery	O Periodic data back-up are undertaken to avoid data loss O Disaster recovery system being implemented

Financial Review

In H Million

	As at March 31,2023	As at March 31, 2022*	Difference
ASSETS
Non-current assets
Property, plant and equipment	183.50	225.73	-42.23
Goodwill	-	0.30	-0.30
Right of use assets	59.28	-	59.28
Financial assets			-
(i) Investments	11.21	288.55	-277.33
(ii) Other financial assets	26.44	2.00	24.44
Income-tax assets (net)	3.12	10.67	-7.55
Other non-current assets	20.32	24.19	-3.87
Total non-current assets	303.87	551.44	-247.56
Current assets
Inventories	206.76	297.42	-90.66
Financial assets			-
(i) Investments	-	218.10	-218.10
(ii) Trade receivables	208.72	155.77	52.95
(iii) Cash and cash equivalents	110.53	225.26	-114.73
(iv) Bank balances other than (iii) above	1,035.73	27.21	1,008.52
(v) Other financial assets	3.15	8.47	-5.32
Other current assets	80.70	158.58	-77.87
Total current assets	1,645.59	1,090.81	554.79
Total assets	1,949.46	1,642.25	307.21
EQUITY AND LIABILITIES
Equity
Equity share capital	130.99	130.99	-
Other equity	1,457.91	1,196.60	261.31
Total equity	1,588.90	1,327.59	261.31
Liabilities
Non-current liabilities
Financial liabilities
Lease liabilities	52.47	-	52.47
Provisions	10.75	12.56	-1.81
Deferred tax liabilities (net)	21.63	32.38	-10.75
Total non-current liabilities	84.85	44.94	39.91
Current liabilities
Financial liabilities
(i) Borrowings	-	-	-
(ii) Lease liabilities	7.54	-	7.54
(iii) Trade payables			-
Total outstanding dues of micro enterprises and small enterprises	29.33	22.71	6.62
Total outstanding dues of creditors other than micro enterprises and small enterprises	134.30	162.79	-28.49
(iv) Other financial liabilities	77.44	56.71	20.73
Other current liabilities	23.15	20.28	2.87
Provisions	3.76	4.90	-1.15
Current tax liabilities (net)	0.19	2.33	-2.13
Total current liabilities	275.71	269.72	5.99
Total liabilities	360.56	314.66	45.90
Total equity and liabilities	1,949.46	1,642.25	307.21

Non-current Assets

Property, plant and equipment (PPE)

PPE decrease from Rs.226 Million in FY20222 to Rs.184 Million in FY2023 mainly due to impairment & Sale of old Plant & Machinery.

Right-of-Assets (ROU)

The ROU increased from 0.00 Million in FY2022 to Rs. 59 Million in FY2023 due to H.O. Leased Assets.

Non-current investments

The decrease in non-current investments from Rs.289 Million in FY2022 to Rs.11 Million in FY2023 is resultant of Sale / Disposal of Investments.

Other non-current financial assets

The increase in non-current financial assets from Rs.2 Million in FY2022 to Rs.26 Million in FY2023 is resultant of increase in Bank Deposits (More than 12 Months)

Current Assets Current investments

The decrease in current investments from Rs.218 in FY2022 to H0.00 Million in FY2023 is resultant of Sale of Investments.

Inventories

The decrease in Inventories from Rs.297 Million in FY2022 to Rs.207 Million in FY2023 is resultant of reduction of holding of inventories.

Trade receivables

The increase in receivables from Rs.156 Million in FY2022 to Rs.209 Million in FY2023 is resultant of increase in sales.

Other current financial assets

The decrease in other current financial assets from Rs.8 Million in FY2022 to Rs.3 Million in FY2023 resultant of decrease in security deposits.

Other current assets

The other current assets have decreased from Rs.159 Million in FY2022 to Rs.81 Million in FY2023 as a result of recovery of advance against suppliers.

Equity

Other Equity

The other equity increased from Rs.1197 Million in FY2022 to Rs.1457 Million in FY2023 mainly due to increase in Profit After Tax.

Non-current Liabilities

The decrease in deferred tax liabilities from Rs.32 Million in FY2022 to Rs.21 Million in FY2023 resultant in financial instrument loss.

Current Liabilities

Trade payables

The decrease in trade payables from Rs.186 Million in FY2022 to Rs.164 Million in FY2023 is due to paying of overdue creditors.

Other Financial liabilities

The increase in other current liabilities from Rs.20 Million in FY2022 to Rs.23 Million in FY2023 is due to increase in provisions.

Key Ratios

In %
Particulars	FY2023	FY2022
Current ratio	5.97	4.04
Net Capital turnover ratio	1.73	2.65
Debt Service coverage ratio	0	2.92
Inventory turnover ratio	3.69	2.99
Net profit ratio	11.29	8.67

Way Forward

o The Company aims to accelerate growth momentum by launching innovative products marketed by global pharmaceutical companies.

o Establishing new divisions with a clear strategic mandate will help achieve sharper focus and growth by aligning resources and efforts towards specific goals. This approach will also lead to increased efficiency and effectiveness in decision-making and resource allocation.

o The Company intends to expand market share by tapping into growing market segments through new product launches.

o The Company is actively looking for inorganic opportunities and intends to leverage its strong

treasury position to enter into lucrative segments of the pharmaceutical industry.

Internal Control Systems and their Adequacy

The Company has adequate internal controls systems in place which provides reasonable assurance about the integrity and reliability of financial statements.

M/S S S Kothari & Co. Chartered Accountant, performs internal audits to provide reasonable assurance over internal control effectiveness and advises on industry-wide best practices. The Audit Committee consisting of Independent Directors reviews important issues raised by the Internal and Statutory Auditors, thereby ensuring that the risk is mitigated appropriately with periodic rectification measures.