Kilitch Drugs (India) Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS

a) Industry Structure and developments Global

Last year has been an unprecedented period with economies combating extreme volatility and uncertainty posed by COVID-19 pandemic. Ever since the emergence of Covid-19, the Pharmaceutical Industry has been leading the fight against the pandemic in terms of developing medicines and vaccines in record timelines. The global Pharmaceutical Industry has seen an increase in the use of medicines over the past decade where the growth of medicines has outpaced both population and economic growth. This expansion has been largely on account of pharmerging markets. In pharmerging markets, growth will be led by China, which is expected to accelerate post Covid driven by greater uptake and use if new original medicines.

The global pharmaceutical market size in 2020 was estimated at US$ 1.27 Trillion and is expected to grow at Compound Annual Growth Rate (CAGR) of 3-6% to 1.6 Trillion in total market size by 2025.

India

The Indian Pharmaceutical Industry has achieved significant growth in both domestic and global markets during the last five decades. The pharmaceutical industry in India contributes more than 20% by volume of the global generics market and 62% of the global demand for vaccines. The Indian Pharmaceutical Industry ranks third in terms of volume and 14th in terms of value globally. The Indian Pharma manufacturers export nearly half of the production, both in terms of volume and value to US, UK, South Africa, Russia and other countries. However, there remains a significant opportunity, largely untapped across Japan, China, Australia, ASEAN Countries, Middle Eastern region, Latin America and other African Countries. Some of the factors impacting lower penetration of these regions are: relatively slower paced entry strategy, regulations emphasizing on local manufacturing, volatility in global market etc.

As per the trend so far, Covid -19 pandemic is expected to have far reaching effects. Increase in price of Raw material and packing material is affecting the profit margins of the industry. There have been concerns around overdependence on China for active pharmaceutical ingredients (API) for quite some time now in India. Since the emergence of the pandemic, the industry has experienced disruption in supply chain because of their dependency on China for APIs and excipients.

b) Opportunities and Treats

Covid-19 has clearly highlighted the importance of strong healthcare system, the lack of which can put an entire nations economy and society at risk. The pandemic has accelerated several opportunities and challenges for the industry. While the growing trust deficit with China presents opportunity for India, there is increased competition from other countries. India is also dependent on China for two-third of its import for bulk drugs or drug intermediaries. Due to the emergence of this pandemic the supply chain and manufacturing facilities were disrupted.The Government of India has taken several measures to overcome this disruption including initiatives like Atmanirbhar Bharat, Ayushman Bharat, Make in India initiative and fast track approval of Covid-19 related drugs to name a few. The companies have also geared up on this front gradually to improve the supply chain.

c) Segment-wise or Product-wise Performance

Kilitch continues to be engaged in the development, manufacturing and marketing of quality finished dosages. The Company has taken steps to build a well diversified business model in terms of markets and products. However, the largest contribution of the business comes from countries in Africa and Asia. Kilitch continues to deliver quality injectables on contract manufacturing for reputed pharmaceutical companies.

We also continue with our efforts to launch differentiated market products. With 15 new product launches planned 202122, we will gain more market share.

We expect that the healthcare market in Africa (Nigeria, Kenya and Francophone), CIS, South Africa and South East Asia will also mature in the coming years.

d) Outlook

With an intent to expand our horizon, we plan to invest in building additional manufacturing infrastructure. Investment on the manufacturing front will help us to explore business opportunities in various other countries and products.

We will continue to focus on improved quality of operations, reducing manual intervention through digitization and automated equipment to meet the highest regulatory standards for our manufacturing facility.

e) Risks and Concern

The Risk management framework at Kilitch identifies, evaluates and addresses the potential risks involved in the Companys business. The key risks faced by the Company and their mitigation strategies include:

• Foreign Exchange Fluctuation Risk

• Political Uncertainty/ Volatility Risk

• Competition Risk

• Regulatory Risk

• Price Risk

f) Changes in Key Financial Ratios

Pursuant to provisions of Regulation34 (3) of SEBI (LODR) Regulation, 2015 read with Schedule V part B(1) details of changes in Key Financial Ratios is given hereunder:

S. NO. Key F inancial Ratio FY 2020-21 FY 2019-20
1. Debtors Turnover Ratio Times 3.51 1.92
2. Inventory Turnover Ratio Times 6.14 4.77
3. Interest Coverage Ratio Times 12.47 9.91
4. Current Ratio Times 2.21 2.49
5. Debt Equity Ratio Times 0.09 0.08
6. Operation Profit Margin % 50.2 46.22
7. Net Profit Margin % 10.72 7.86
8. Change in Return on Net Worth % 0.05 0.03

g) Cautionary Statement

Statements in this report and Corporate Governance Report read together with the Directors Report and financial statement describing the Companys objectives, projections, estimates, expectations and predictions, may be "forward looking statements". Actual results may differ from those expressed or implied due to variations in prices of raw materials, seasonal demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and other incidental factors.