Krebs Biochemicals & Industries Ltd Management Discussions.

Industry Structure and Developments:

Global:

Pharmaceutical Industry worldwide is expected to grow steadily with less developed markets and therapies directed to age related diseases being major drivers.

Emerging markets are driving the growth with increasing purchasing power and aceess to healthcare.

Developed markets continue to grow with new medicines. The ongoing Covid-19 pandemic has focused the immediate efforts of the Global Pharmaceutical Industry towards finding therapies for the treatment and also vaccine development. Further it has made both Countries and Companies to review the supply chains for critical and essential drugs and their dependency on certain countries. This could be an opportunity for India.

Indian Pharma

Sector:

The Indian Pharmaceutical sector is increasingly recognised as a source of Quality and cost effective medicines for the world. Its domestic market is growing at one of the highest rate in the emerging markets and is driven by increasing purchasing power of the population and wider availability of healthcare.

The Indian government has in response to the covid 19 pandemic having studied the supply chains of Indian pharmaceutical manufacturers has announced incentives to promote the manufacturing of API which are currently imported from China to make India self reliant.

(Source: IBEF)

Strengths & Opportunities:

Combination of niche technology based products and Market strength of Ipca allows the company to be a quality competitive player in API manufacturing.

The companys existing infrastructure and expertise in Fermentation can enable capitalizing on the Government API manufacturing promotion schemes.

Risks, Concerns & Threats:

Dependence of too few products for revenues and growth can pose unexpected risks. In order to mitigate this a strong pipeline is being developed.

Updation and upgradation of facility and manpower to be in line with the latest quality and regulatory requirements is of paramount importance. This is a continuous and ongoing process Common goals of Company and partner can enable a healthy growth trajectory. This is being done at arms length and transparent manner.

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. 3377.73 Lakhs compared to Rs.4808.86 lakhs in previous financial Year 2018-19.

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. 53,00,00,000 (Rupees Fifty Three Crore only), comprising of:

i. Rs. 23,00,00,000 (Rupees Twenty three Crore) equity share capital divided into 2,30,00,000 Equity Shares of Rs. 10/- each; and

ii. Rs. 30,00,00,000 (Rupees Thirty Crore only) preference share capital divided into 30,00,000 Preference Shares of Rs. 100/- each.

Reserves:

The reserves of the company were reported at Rs.(4299.65) as against Rs. (3044.28) Lakhs during the year.

Secured Loans:

The secured loan with Edelweiss Asset Reconstruction Company Limited has been reduced by Rs. 191.70 lakhs, as the installments have been paid as per the agreement entered.

As on 31st March, 2020, the Secured loan stood at Rs. 00.00 lakhs compared to Rs. 191.70 lakhs during the previous year.

Investments:

No investments were undertaken during the year under review.

Inventories:

The value of inventories stood at 1,499.56 Lakhs as at the end of the period i.e as on 31st March, 2020. 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 decreased toRs. 20.21 Lakhs during the period ended 31st March 2020 from Rs. 291.09 lakhs as on 31st March 2019. 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. 870.64 Lakhs respectively, which takes the total gross block to Rs.24,029.24 Lakhs as on 31st March, 2020 as against Rs. 23,159.22 Lakhs as on 31st March, 2019.

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.441.88 lakhs as on 31st March, 2020 as against Rs. 418.43 Lakhs as on 31st March, 2019 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.

The company has a very low dependence on imported raw materials.

Finance Charges:

The finance charges during the year amounted to Rs.592.78 Lakhs as against Rs. 623.80 Lakhs during the previous year during which the interest was paid towards the Inter-corporate Deposit and other statutory payments.

Overheads:

The Other Overheads are Rs. 2110.32 Lakhs for the FY 2019-20 as against Rs.1953.00 Lakhs for the F.Y2018-19, on account operations during the respective accounting periods.

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.

During the Financial year manufacturing activity Of Unit II was temporarily stopped by the Pollution Control Board. The concerns raised by Pollution Control Board have been addressed in entirety and a Permanent revocation has been obtained and full manufacturing activity was resumed.

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: 07.08.2020