KDL Biotech Ltd Management Discussions.

KDL BIOTECH LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS CAUTIONARY STATEMENT This part of the Report deals with expectations and risk analysis about the future, which is based on certain assumptions and events. The Company can not guarantee these assumptions and expectations being accurate or will be realized nor the risks outlined exhaustive. The Company assumes no responsibility to publicly amend, modify or revise any of these statements on the basis of any subsequent developments, information or events. REVIEW OF OPERATIONS During the year there is no change in the scenario of Penicillin products. Active Pharmaceuticals Ingredients (API) suppliers in Europe and United States are facing increasing pricing pressures due to presence of low cost providers in developing markets, excess big Pharma capacity, and backward integration by certain generic companies. China is still controlling the prices of Penicillins & 6-APA resulting in fluctuations in Amoxicillin prices. Due to delays in financial restructuring the Company could not start its own production and continue the Job Work activities for Unimark Remedies Limited. OUTLOOK ON OPPORTUNITY The domestic bulk drug industry is poised to benefit from the impending patent expiries in the regulated markets leading to increase in generic penetration; thereby providing a Significant opportunity for supply of APIs to manufacturers of such generic drugs coupled with increased outsourcing of bulk drugs by multinational pharmaceutical companies. As the site is penicillin based it will be difficult for change in the product range considering regulatory concerns. Hence, in order to sustain the competitive Semi Synthetic Penicillin price, company is developing a cost effective process for the manufacturing of Amoxicillin Trihydrate. Pilot trials for the same are successfully completed & commercialization will be start by this year. Company in co-operation with Unimark Remedies Limited has completed the pilot trials of biocatalyst in our Biotech facility. OUTLOOK ON CONCERN China remains a dominant player in the global bulk drug industry given its large scale manufacturing capabilities, cost leadership and sufficient availability of intermediates due to strong technological capabilities in fermentation. This growing competition from China and from our Indian counterparts remains a challenge to survive in this business. SEGMENT WISE PERFORMANCE The Company has only one segment i.e. Pharmaceuticals. INTERNAL CONTROL SYSTEMS AND ADEQUACY The Company has adequate system of internal controls to ensure that all the assets are safeguarded and are protected. Necessary checks and balances are in place to ensure that transactions are adequately authorised and reported correctly. The Internal Auditors of the Company conduct Audits of various departments to ensure that internal controls are in place. These are being reviewed by the Audit Committee of the Board and corrective actions are taken by the Company, when needed. The Company has appointed M/s. Rege & Thakkar, Chartered Accountants as its Internal Auditors. HUMAN RESOURCES We, at KDL are driven by one common philosophy that people are our greatest assets. This has been and will continue to be the guiding force in formulating various Human Resources (HR) strategies and policies. We believe in simplicity and focus on creating strong process driven work environment and thereby enable our human capital to efficiently partner with business. Our people philosophy is woven around following tenets - 1. Innovation 2. Respect for people 3. Collaboration and leadership 4. Result focus with emphasis on providing customer delight Our vision is to feature as a Preferred Employer. The Company has continued the best HR practices to develop their employees. The Company has also organized in house & external training Programmes on various subjects. Yearly training calendar, based on the training need identification, is prepared and followed. Employees are suitably rewarded for their performance in order to motivate them. The Company has implemented & continued a system for quarterly review of performance of employees. Last year, 92 employees were rewarded for their performance. Training awards: Employees are also awarded for their maximum participation during the training session in Worker cadre, Staff cadre and Management cadre. Company has maintained a harmonious relationship with their employees along with their family members by organizing various welfare activities & various competitions. HEALTH, SAFETY & ENVIRONMENT The Company has well defined management goals for Health, Safety & Environment, which are strictly followed. For maintaining the safe operating practices and healthy working environment, the Company conducted safety audits, risk analysis, mock drills and Hazop studies regularly. To improve the Health, Safety and Environment standard company has obtained the certification of ISO 14001:2004(EMS) and BS OHSAS 18001:2007. The Company has also organized in house & external Safety training Programmes on various subjects. The National Safety week, World environment day & Fire service day are celebrated with various activities like Mock-drills, Training by external faculties with Tree plantation The housekeeping audits are being conducted quarterly & Awards are distributed to motivate employees regarding the awareness of house keeping Being a chief coordinator of the Mutual Aid Response Group (MARG) -Raigad, the Company organized the On-site mock drills with neighbouring industries and Off-site Drill at Mumbai - Pune Highway with Government Departmant. During last year company arranged special training programmes for Police department (Khalapur, Khopoli, Karjat zone) to attend the emergency while transporting hazardous goods. FINANCE It has been a constant endeavour on the part of the company to avail low cost debt by restructuring process with the banks and others. The response was slow due to the fact that the company had to depend more on job work business than its own production which affected the operation of the company as well as the restructuring process with the banks and others. The Company is negotiating with the Bankers for One Time Settlement of its Working Capital facility, which will resolve its issues effectively with the banks and the Company is hopeful of settling this issue through Onetime Settlement Scheme (OTS). The Company is a sick Company within the meaning of Section 3(1)(O) of the Sick Industrial Companies (Special Provisions) Act, 1985. The Company has made a reference to the Board for Industrial and Financial Reconstruction (BIFR) under Section 15 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 on 6th June, 2011, which has been registered by BIFR as case No. 35/2011. The case before BIFR is at a hearing stage and is pending before BIFR for determination of Sickness of the Company. The last hearing was held on 18th July, 2012. The advocate representing State Bank of India (SBI) stated that they had already filed their written submission as directed by BIFR, vide their letter dated 13th June, 2012. The Consultant representing the company stated that they had not received the copy of the written submission made by SBI. The advocate representing SBI stated that he will hand over a copy of written submission to the Company on the same day. The representative of Canara Bank stated that they had already filed their objection vide letter dated 3rd May, 2012. He handed over a copy of the same to the Consultant representing the company, during the course of hearing. The advocate representing Sales Tax Department stated that the total outstanding due against the company amounts to Rs. 9.27 crores. Having considered the submissions made and material on record, the honourable Bench directed that the case be listed for Argument. The next date of hearing in the case has been fixed on 10th September, 2012. After a constant follow-up with SBI, the Company has recieved the copy of written submission from SBI on 22nd August, 2012. The Company has filed its reply against the submission of SBI & Canara Bank before BIFR. Further, with the help of Financial Advisors, the Company is also working on the alternative mode of Finance for funding OTS.