Kwality Pharmaceuticals Ltd Management Discussions.

INDUSTRY STRUCTURE & DEVELOPMENT

India is among the leading global producers of cost-effective generic medicines and vaccines, supplying 20 percent of the total global demand by volume. The country has an established domestic pharmaceutical industry, with a strong network of 3000 drug companies and about 10,500 manufacturing units. Out of these, 1,400 units are World Health Organization (WHO) good manufacturing practice (GMP) approved; 1,105 have Europe’s certificate of suitability (CEPs); more than 950 match therapeutic goods administration (TGA) guidelines; and 584 sites are approved by the US Food and Drug Administration (USFDA). With technologically strong and totally self-reliant, low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade, the industry is growing about 8 to 10 percent annually.

The pharmaceutical industry in India produces a range of bulk drugs, which are the key acting ingredients with medicinal properties that form the basic raw materials for formulations. Bulk drugs account for roughly one-fifth of the industry output while formulations account for the rest. India also has the expertise for active pharmaceutical ingredients (APIs) and sees significant opportunities for value-creation. At present, Indian companies supply over 80 percent of the anti-retro-viral drugs used globally to combat AIDS (Acquired Immuno Deficiency Syndrome). In 2017-18, India exported pharma products worth US$ 17.27 billion. By 2020, the industry estimates the exports to grow by 30 per cent to reach US$ 20 billion.

The US is the most lucrative generics market for India’s pharma industry. It is valued at around $60 billion and accounts for about 25 percent of India’s total shipment.

OPPORTUNITIES, RISKS, CONCERNS & THREATS

The pharmaceutical industry undertakes several risky ventures that are a growing concern for pharmaceutical companies. Due to technological advances, pharma companies take risks to have a competitive edge. Till now, there has been limited material impact of litigations on Indian pharma companies but the cost and settlement of such a litigation has the potential to be a key factor impacting the companies’ bottom line going ahead. As Indian firms increase their business stakes in the world’s largest drug market and the most litigious one, the legal ramifications are also likely. The Company faces stiff competition from other pharmaceutical companies in India and across the world which can impact its market position and revenue. However, the Company is committed to improving the lives of people facilitated by its robust R&D, strong manufacturing facility and operational efficiencies.

As an organisation, we have developed competencies and capabilities to emerge resilient in a tough industry environment. Cost-effective global procurement practices backed by our efficient global supply chain and manufacturing has enabled us to consolidate our market shares in key geographies. Our deep customer relationships with sharp focus on ensuring high service levels have contributed to fortification of our leadership position and build growth drivers for the future. Bound by a strong compliance ethics, we rely heavily on risk management and forecasting frameworks to manage competitive, economic, financial, geo-political and social risks.

According to pharma industry experts, standard of the drugs is the only concern for the market. There are no basic threats to pharma industry in India. 70 per cent of pharma market is generic, 9 per cent is oriented and rest 21 per cent is over-the-counter which is acceptable. Indias healthcare budget is less. The country spends only a small part of GDP on healthcare while in other countries 4-5 per cent of GDP is outlaid on healthcare.

OUTLOOK

The Indian pharma industry is on a good growth path and is likely to be in the top 10 global markets in value term by 2020, according to the PwC CII report titled "India Pharma Inc: Gearing up for the next level of growth". The Indian pharma industry has been growing at a compounded annual growth rate

(CAGR) of more than 15% over the last five years and has significant growth opportunities. However, for the industry to sustain this robust growth rate till 2020, companies will have to rethink their business strategy. They will have to adopt new business models and think of innovative ideas to service their evolving customers faster and better.

The Company achieved significant progress on its key priorities in FY 2018-19 despite a number of challenges around an uncertain regulatory environment, volatility in emerging markets and pricing pressure across the globe. For FY 2019-20, company will remain focused on its agenda of superior revenue growth, cost consciousness and improving the overall margin profile of the Company. The Company expects to taper down capital investments and continue its focus on operational efficiencies to drive strong cash flows. Revenues and profitability for FY 2019-20 would see an increase led by increase in capacity and pick-up in demand of pharmaceuticals.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company has an adequate internal control system commensurate with its size and the nature of its business in order to achieve efficiency in operation and optimum utilization of resources. These controls ensure safeguarding of assets, reduction and detection of fraud and error, adequacy and completeness of the accounting records and timely preparation of reliable financial information. Internal audits are conducted in the Company on regular basis. Reports of the internal auditor are reviewed by the senior management and are also placed before the Audit Committee of the Directors. The statutory auditors also review their findings with the senior management and the Audit Committee.

FINANCIAL AND OPERATIONAL PERFORMANCE

(In Rupees Lacs)

Particulars Current Year Previous Year
Total Income 16607.85 13792.82
Profit before Tax (PBT) 1089.64 755.01
Profit After Tax (PAT) 754.72 467.59

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The human resource plays a vital role in the growth and success of an organization. The Company has maintained cordial and harmonious relations with employees across various locations. During the year under review, various training and development workshops were conducted to improve the competency level of employees with an objective to improve the operational performance of individuals. The human resource policies of the Company are formulated with the objective of creating a safe, conducive and stimulating work environment for enhancing employee motivation and satisfaction. The Company is committed to attracting and retaining best talent in the industry and upgrading the skill-set and knowledge of existing employees. The Company has maintained cordial and harmonious relations with all employees.

CAUTIONARY STATEMENT

Statement in this report describing the Company’s objectives, expectations or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the company’s operations include economic conditions affecting demand / supply and price condition in the domestic markets in which the company operates, changes in the government regulations, tax laws and other statutes and other incidental factors.

For and on Behalf of the Board
Sd/- Sd/-
(RAMESH ARORA) (AJAY KUMAR ARORA)
Place: Amritsar Managing Director Whole Time Director
Date: 10th August, 2019 DIN: 00462656 DIN: 00462664