Krebs Biochemicals & Industries Ltd Management Discussions.

Industry Structure and Developments:

Global:

Pharmaceutical Industry worldwide is decelerated in the mid 2018 due to increased tarrifs and trade tensions between the US and China.

As per the World Economic Report released by IMF in April 2019, global growth is projected to slow from 3.6% in 2018 to 3.3% in 2019. Manufacturing companies are confronted with enormous challenges due to high market growth, changing regulations and progressing digitization.

New technology absorption and implementation and robust quality systems will increasingly differentiate. Higher investment requirements for quality and regulatory standards compliance along with gestation periods will be an entry barrier of small companies and significant hurdle for medium sized companies. Consolidation and strategic partnerships will result from such a landscape.

Indian Pharma Sector:

The Indian pharma industry has an important position in the global pharmaceutical industry. It is expected to expand at a CAGR of 22.4% over a period from 2015-2020 to reach USD 55 Billion. Indias pharma exports have reached USD 19.14 Billion in 2018-2019.

It is expected that Indian Pharma Industry likely to grow by 11% to USD 41.9 Billion in FY 2019-20. Medicine spending in India is expected to grow 9-12% over the next five years leading India to become one of the top 10 countries in terms of medicine spending.

(Source: IBEF)

Strengths & Opportunities:

The strategy of building skillsets and infrastructure in niche areas of fermentation, bio catalysis and chemistry allows the company to pursue products, groups and partners in the niche segment.

Access to Ipca marketing reach and also ability to leverage the forward integration possible with their finished dosage capabilities will allow for an exciting opportunity. Smaller operation size allows for certain nimbleness in exploiting market opportunities.

Risks, Concerns &Threats:

The long gestation periods required to realise commercial sales can put pressure on the balance sheet. With the strong partner this is reasonable mitigated in our case.

Quality and regulatory knowledge building in the Company is a slow and difficult process essential for long term success of the Company. A comprehensive plan is being put in place to achieve this.

Alignment of interests of the partner along with the company is of paramount interest. An open and transparent relationship is being cultivated to achieve this.

Company infrastructure:

Krebs,having its Registered Office at Kothapalli (V), Anakapalli, Vishakapatnam, Andhra Pradesh and corporate office at Hyderabad, has two multi-purpose manufacturing facilities, Unit – I in Nellore and Unit – II in Anakapalli (Vizag) with all support infrastructures like Utilities, environment management and safety systems.

Performance of the company:

During the year under review your company recorded total income of Rs. 4808.86 lakhs compared to Rs.3398.52 lakhs in the previous financial year 2017-18.

Internal Control Systems and their adequacy:

The Company has in place adequate internal control systems, which commensurate with its size, nature of business and complexity of its operations and are designed to provide a reasonable degree of assurance regarding the effectiveness and efficiency of operations, the adequacy of safeguard for assets, internal control over financial reporting, and compliance with applicable laws and regulations. Internal audit function evaluates the adequacy of and compliance with policies, plans, regulatory and statutory requirements.

The Internal Auditors directly report to the Boards Audit Committee, thus ensuring the independence of the process. It also evaluates and suggests improvement in effectiveness of risk management, controls and governance process. The Audit committee and Board provides necessary oversight and directions to the Internal audit function and periodically reviews the findings and ensures corrective measures are taken.

Discussion on Financial Performance with respect to Operational Performance:

The Financial statements are prepared under the Historical Cost Convention in accordance with Indian Accounting Standards and the Provisions of the Companys Act, 2013 and other standards issued by the Institute of Chartered Accountants of India. All Incomes and Expenditure having a material bearing on the financial statements are recognized on accrual basis. The management accepts responsibility for the integrity and other objectivity of these financial statements as well as various estimates and judgments used therein

Capital:

The Authorized Share Capital of the company is Rs. 20.00 crores divided in to 2,00,00,00,0 (Two Crore) equity shares of Rs.10.00 each of which issued, subscribed and paid up capital is Rs.16.63 crores divided in to 1,66,30,586 Equity shares of Rs.10/- each. There is no other class of shares.

Other Equity

The other equity of the company were reported at Rs. (3091.97) Lakhs as against Rs. (3152.35) lakhs during the year.

Secured Loans:

The secured loan with Edelweiss Asset Reconstruction Company Limited has been reduced by Rs. 400.00 lakhs, as the instalments have been paid as per the agreement entered.

As on 31st March, 2019, the Secured loan stood at Rs. 191.70 lakhs compared to Rs. 600.00 lakhs during the previous year.

Investments:

No investments were undertaken during the year under review.

Inventories:

The value of inventories stood at 896.37 Lakhs as at the end of the period i.e as on 31st March, 2019. The raw materials, stores and spares are valued at "AT COST" and related inward transport and handling charges. Work in progress is valued at cost incurred up to the stage of manufacturing. Cost of finished goods includes all direct costs and an appropriate portion of overheads as per accepted principles of accounting.

Sundry Debtors:

During the year under review, the recovery from the debtors was continuous in spite of no material change in the turnover and the same was reflected as increase to Rs. 291.09 Lakhs during the period ended 31st March 2019 from Rs. 32.48lakhs as on 31st March 2018. Sundry debtors outstanding for more than six months as on the balance sheet date were accumulated over a period and the recovery action was initiated.

Fixed Assets:

The net additions made during the year under review, amounted to Rs.433.91 Lakhs respectively, which takes the total gross block to Rs.23, 159.22 Lakhs as on 31st March, 2019 as against Rs.22,725.33 Lakhs as on 31st March, 2018.

Depreciation:

The Company has been calculating depreciation on straight line method at the rates specified in Schedule II of the Companies Act, 2013 amounting to Rs.418.43lakhs as on 31st March, 2019 as against Rs. 394.86Lakhs as on 31st March, 2018 based on the useful life of the assets as per Schedule II of the Companies Act, 2013 and applicable accounting standards.

Raw Material:

The supply position of raw material throughout the year was smooth and comfortable. There was no interruption or stoppage of production due to shortage or non-availability of raw materials. The Company always maintains a minimum stock as required for production through efficient budgetary planning of production.

Finance Charges:

The finance charges during the year amounted to 623.80 Lakhs as against Rs.516.52 Lakhs during the previous year during which the interest was paid towards the Inter-corporate Deposit and other statutory payments.

Dividend:

In view of the accumulated losses no provision is made for dividend.

Material developments in Human Resources:

The Company very well recognizes the importance of the employee work force and provides excellent growth opportunities, training and development and competitive compensation packages to attract and retain with the Company the best talents available in the industry and will continue to do so upon revival of operations.

Safety and Environment:

The operations of the companys plants are in conformity with good industrial safety practices. Regular Hazards and Risks Analysis were conducted at both the plants as part of the ongoing Safety Policy. The management takes into consideration the welfare of the employees and also effect on the surrounding community at large. Norms and Standards for effluents treatment and disposal are prescribed by the Pollution Control Board and are complied with.

Cautionary Statement

In addition to historical information, this annual report contains certain "forward looking statements" within the meaning of applicable securities laws or regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global economy, global and Indian demand supply conditions, increased installed capacity by competitors, finished goods prices, raw materials availability and prices, cyclical demand and pricing in the Companys markets, changes in government regulations, tax regimes, besides other factors, such as litigations and labour negotiations.

The estimates and expectations are based on the historical facts and perception of future possibility as envisaged by the management. As known to everyone, the entire business environment is never static. Unexpected changes and unforeseen developments are not rare. The global trend is now prevalent and any incidents in the world market will have an effect on the operations of your company. While taking all precautions to be realistic and practical in making presumptions for the future, the management would like to advise that the statements may be read in proper perspective depending upon such developments and their possible effect on the Companys operations and activities.

For and on behalf of the Board of

Krebs Biochemicals and Industries Limited

Sd/-

Avinash Ravi

Managing Director

Place: Hyderabad

Date: 09.08.2019