Lincoln Pharmaceuticals Ltd Management Discussions.

Global Economy

COVID-19 triggered a deep recession that was only surpassed by two World Wars and the Great Depression in the previous century and a half. Despite the fact that global economic activity is increasing again, business as usual is unlikely to resume in the near future. The epidemic has claimed many lives, pushed millions into poverty, and is anticipated to leave enduring wounds that will keep activity and income substantially below pre-pandemic levels for a long time.

The initial improvement was originally aided by a slight relaxation of the strict lockdowns. However, as COVID-19 has expanded over the world, several restriction measures have been reintroduced. Infections have returned with a vengeance in some locations.

The global economy is predicted to decrease by 4.3 percent in 2020, which is 0.9 percentage point less than projections from June. Although the first decline in advanced economies was less severe than expected, the subsequent recovery has been hampered by a significant return of COVID-19 cases.

Following the collapse caused by the COVID-19 pandemic last year, worldwide economic output is predicted to grow 4% in 2021, but will still be more than 5% under prepandemic forecasts. Global growth is expected to slow to 3.8 percent in 2022, owing to the pandemics long-term impact on prospective growth. The effects of the pandemic on investment and economic output in emerging market and developing economies (EMDEs) is likely to degrade growth prospects and set back major development goals.

On the back of pandemic containment, universal vaccination and sustained monetary policy accommodation, advanced economies are predicted to recover, with GDP reaching 3.3 percent and 3.5 percent in 2021 and 2022, respectively, more than compensating the partial unwinding of fiscal assistance. Although EMDE growth is predicted to accelerate to 5 percent in 2021 and then moderate to 4.2 percent in 2022, the increase is mostly due to Chinas expected recovery. Without China, the recovery in EMDEs is expected to be much more moderate, averaging 3.5 percent in 2021-22, as the pandemics residual impacts weigh on consumption and investment.

The worldwide recovery, which has been hampered in the short term by a recurrence of COVID-19 infections, is projected to improve over time as confidence, demand, and exports improve, aided by continued vaccination. The prospect of a further increase in virus propagation, delays in vaccine supply and distribution, severe and longer-lasting consequences on total output from the pandemic, and financial stress generated by high public debt and sluggish growth are all downside risks to this baseline. Limiting the viruss spread, assisting vulnerable groups, and solving vaccine-related problems are all top policy issues right now. As the crisis fades, policymakers must weigh the hazards of big and growing debt loads against the risks of premature fiscal tightening, which could weaken the economy. To deal with the pandemics negative consequences, it will be necessary to strengthen resilience by prioritising investments in digital innovations and alternative energy, boosting governance, and increasing debt transparency. Many of these issues will require global cooperation to solve.

Indian Economy

India has progressed through the pandemic because of the governments robust policy actions and a positive prospect for economic recovery. Since January 16, 2021, India has provided 4 million shots of COVID-19 vaccines in two weeks, making it the worlds fifth-largest vaccinated country. India has established itself as the worlds vaccine powerhouse, aiding more than 90 countries looking to stockpile vaccines.

Since March 2020, the government has implemented early lockdown, ramped-up health-infrastructure, incremental unlocking, blanket testing, social distancing, tailored deficit reduction (to reduce supply shortages and revitalise demand) and institutional adjustment to help keep Indias fatality rate at 1.2 percent, one of the lowest in the world. India is soon becoming the worlds fastest-growing major economy, with the IMF forecasting growth of up to 6.8% in FY23. In addition, the Economic Survey 2020-21 has highlighted the V-shaped growth in the economy, which is a tribute to Indias rising economy and inherent strength. In January 2021, there was a sustained economic rebound.

Employment demand under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) improved dramatically between April 2020 and January 2021. (51.5 percent YoY). The scheme registered 323.2 crore person- days of work until January 2021, an increase of 46.8% year on year.

The Manufacturing Purchasing Managers Index (PMI) in India was 57.7 in January 2021, up from 56.4 in December 2020. New orders and increased exports fueled this growth. Merchandise exports increased by 5.4 percent year over year in January 2021. In January 2021, the PMI Services Index increased to 52.8 from 52.3 in December 2020. The introduction of the COVID-19 immunisation campaign enhanced overall business optimism in January 2021. Power consumption climbed by 4.8 percent in January 2021 and 5.2 percent in December 2020, indicating that commercial and industrial activity are continuing to improve.

FDI continues to be a significant driver of economic growth and a major source of non-debt finance in India. Between April and November 2020, total FDI inflows reached a new high of US$ 58.37 billion, a 22.4 percent increase during the first eight months of 2019-20, bolstering Indias status as a preferred global investment destination. In January 2021, the net FPI inflows totalled US$ 1.23 billion.

Global Pharmaceutical Industry

The international pharmaceutical market was worth US$ 405.52 billion in 2020, and it is predicted to increase at an annual pace of 11.34 percent from 2021 to 2028. With the introduction of new technology and more efficient manufacturing methods, the pharmaceutical industry has experienced a significant upheaval. Furthermore, increased investment flow in this domain has had a beneficial impact on market growth. Robotic technologies and Artificial Intelligence are used to decrease manufacturing delays and product waste (AI). Furthermore, in this market, single-use disposable solutions have gained traction and have overtaken open transfer manufacturing procedures. In addition, the paradigm change towards integrated, intelligent, data-rich paperless operations has resulted in error-free and flawless output. Drug manufacture has accelerated as a result of these continuous improvements.

Consistent advancement in the field of personalised medicine has opened up a slew of new options for treating a variety of ailments, as well as the development of patient-centric models. As a result of this breakthrough, the development of complicated medications and personalized treatments is shifting from big quantities to smaller batches. This has prompted manufacturers to restructure their supply chains in order to better match with the patient-centered health-care system.

The medication manufacturing techniques are projected to be fueled by an increase in drug approvals by regulatory agencies. The FDA, for example, approved 59 medications in 2018, 49 pharmaceuticals in 2019, and 15 drugs through April 2020. In addition, a huge number of existing clinical trials have generated several market growth potential.

In recent years, the pharmaceutical business has seen a growth in mergers and acquisitions. In this highly competitive environment, the most well-established companies are strategising to strengthen their market position. Small to mid-sized pharmaceutical companies, on the other hand, are bought for their inventive skills. Furthermore, strict rules aimed at lowering pharmaceutical prices are also a crucial factor.

The research-based pharmaceutical business has the potential to help Europe re-establish growth and ensure global competitiveness. In Europe, € 39,000 million will be invested in pharmaceutical-based R&D by 2020. It directly employs about 8,30,000 people and indirectly employs roughly three times as many people than it does directly. However, the industry is confronted with significant problems. Aside from extra regulatory impediments and rising R&D expenses, the sector has been severely harmed by the impact of European governments budgetary reforms.

Indian Pharmaceutical Industry

Due to the outbreak of the COVID-19 pandemic, the pharmaceutical industry, as well as the healthcare sector globally, has been impacted severely, resulting in changes in consumer requirements and preferences, as well as macroeconomic, structural, and microeconomic changes. The pharmaceutical industry is responding with agility in the face of the global epidemic and a changed world, from the analysis of the novel Covid-19 virus in January to the successful development of vaccines and their inoculation on a global scale. This breakthrough has been made possible by unprecedented worldwide efforts, including exceptional teamwork, resource mobilization, and real-time data exchange. With the exception of the speed, which is crucial in a health emergency, the blueprint has been designed to accelerate innovation without regard for financial risk. This comprises resource and data sharing, adaptability and effectiveness through modern technology adoption, and, most critically, risk management among stakeholders. Across all geographies, healthcare is expected to be at the top of the strategic agenda. Governments from all over the world will keep a tight eye on the pharmaceutical business in the future.

Since March 2020, the sector has faced crippling constraints and hurdles in reaching customers with aspirations to operate and distribute medications in India and around the world. In response to the global crisis, the pharmaceutical industry outperformed expectations, selling pharmaceuticals to over 150 nations in addition to covering all local demands. Over the course of the year, a significant increase in vaccine capacity was achieved to boost vaccine administration in India and other countries that rely on India for supplies.

Over the previous two decades, the Indian pharmaceutical industry has developed at a compounded annual growth rate (CAGR) of 11% in the domestic market and 16% in exports. While the local market has expanded at a similar rate to GDP the industrys overall expansion has been fueled by its leadership in delivering generic formulations to markets across the world.

We predict the Indian pharmaceutical business to increase at a compound annual growth rate (CAGR) of 12% between 2020 and 2030, reaching US$130 billion by 2030, up from US$41.7 billion in 2020. Though the pharmaceutical sector has expanded at a CAGR of almost 13% over the last two decades, it has risen at an 8.5 percent CAGR in the last decade.

The Indian pharmaceutical industry produces over 40% of generics in the worlds largest pharma market - the United States, and about 25% of prescription drugs in the United Kingdom, as well as over 60% of global vaccine supply, making India one of the worlds leading pharmaceutical manufacturers. The global formulation trade value is around US$652 billion (2019), with Indias participation of global exports only about 2.5 percent. With rising pricing pressure on the global generics market and increased competition in Indias established export corridors, the present product range is projected to widen the gap even more.

Company Overview

Lincoln Pharmaceuticals Limited is an organisation dedicated towards attaining progress in the industry via breakthrough innovation, proficient business techniques and total customer satisfaction. As a high-achieving pharmaceutical producer, we manufacture and advertise numerous therapeutic molecules adhering to the WHO-GMP guidelines in both domestic and international markets. Developed using the best-in-class standards, our drugs are available at very cost- effective rates for the masses.

Established in 1979, the company has been a leader in branded generics due to its affordable and innovative medicines for healthier lives. With its own R&D and locus manufacturing facilities in Ahmedabad, the organisation is treading steadily towards its vision of "Healthcare for All". Furthermore, the companys manufacturing units have received European Union (EU) GMP certification, which grants them the marketing rights of their products in all the 27-member nations of the EU and access to European Economic Area (EEA) countries.

Lincoln Pharmaceuticals Limited stands out in the industry on the back of its cutting-edge R&D capabilities. With more than 30 scientists at the helm of the department, the company has filed patents for 25+ patents and received seven patents. Recognised by the Department of Scientific and Technology and the Government of India, the companys state-of-the art devices and equipment are capable of conducting internal physical, chemical and microbiological analyses of all products.

As a responsible contributor to the society, the company is serious on its green initiatives and has set up a new solar plant of 1 MW in addition to two windmills. The result is savings of nearly 65% of electricity cost, propelling the organisation to become a self-sustaining and environment- friendly pharmaceutical company.

Lincoln Pharmaceuticals Limited stands tall on the foundation of scientific, financial, managerial and operational expertise which works to revitalize your life. We take pride in lending

a forward momentum to the Indian pharmaceutical industry, :hrough our intellectual property, enterprise facilities and very /ital personnel resources.

Operational Overview

n FY21, Lincoln Pharmaceuticals Limited managed to conduct business smoothly after the organized unlock n India. Apart from manufacturing goals, the Company schieved many objectives which ensured the financial year was filled with success and optimism.

The following achievements highlight the growth of Lincoln Pharmaceuticals Limited in FY21:

 

1 Secured a patent for Didofenac Rectal Spary

 

1 Developed new NDDS formulations and introduced them for the first time in India

 

1 Producing renewable energy for captive consumption

 

1 Aggressive international operations in Africa and SouthEast Asia. Received EU GMP certificate to conduct business in the European Union.

 

1 To Amalgamation Lincoln Parenteral Limited and Lincoln Pharmaceuticals Limited to synergise operations and enhance competitive strength, cost-effectiveness and productivity

 

1 Set up API production unit and Cephalosporin Plant =inancial Performance and Outlook

The Net Revenue has gone up from 397.5 crores in FY20 to f429 crores in FY21, a rise of 8.1 per cent. On the other hand, :he EBITDA for FY21 is 92.8 crores, a growth of 21.1 per cent Torn 76.6 crores in FY20. The Profit After Tax (PAT) for FY21 stands at 62.2 crores, an increase of 21 per cent from 51.4 srores in FY20. The exports for FY21 has rise by 18.4 per cent :o 270 crores.

At the end of FY21, Lincoln Pharmaceuticals Limited stands debt-free with a strong liquidity position. In the last five years, :he Company has delivered a staggering 20 per cent CAGR in srofits. At current pace, Lincoln Pharmaceuticals Limited will easily surpass the industry growth levels and reach double digit sales growth with better margins.

Sr no. Particulars 2020-21 2019-20
Profitability Ratios
1 Operating Profit Margin 20.55% 16.96%
2 Net Profit Margin 14.68% 13.20%
3 Return on Net worth 16.57% 16.27%
Working Capital Ratios
1 Debtors Turnover (days) 96 96
2 Inventory Turnover (days) 86 95
Gearning Ratios
1 Interest Coverage 59.44 37.95
2 Debt/Equity Nil Nil
Liquidity Ratios
1 Current Ratio 4.17 3.78

Risk Management

The Company finds its risk from increasing unorganised players in its segments and the growing number of imports which leads to the competitive market. This increasing competition can hamper the profitability of the Company. For this, the Company has employed a vigilant approach to continuously identify, analyse and monitor the risks associated with its business. The management aims to provide confidence to the stakeholders that the Companys risks are known and well managed. Further to this, the Company also focuses on protecting the environment and growing its awareness. Additionally, various other cost controlling measures have been taken to focus on the cost control.

Human Resources

Professional, motivated and highly qualified personnel are among Mitsus most precious assets and the key to our future growth. The Company encourages its employees to perform to their best ability and supports open collaboration, engagement and involvement. Constant improvements are brought about in work practices, technological and technical developments, and productivity of employees through training and learning development programmes. The Company believes in offering the best possible opportunities to its human resource for growth, development and a better quality of life, while developing their potential and maximising their productivity. Further, the Company also believes in talent acquisition to augment its plan of making its presence firm in the market its leads. As at March 31, 2020 the Company strength stands at 288.

Internal Control System

The Company has built adequate systems of internal controls towards achieving efficiency and effectiveness in operation, optimum utilisation of resources, and effective monitoring thereof as well as compliance with all applicable laws. The internal control mechanism comprises well-defined organisation structure, documented policy guidelines, predetermined authority levels and processes commensurate with the level of responsibility. Needless to mention, ensuring maintenance of proper accounting records, safeguarding assets against loss and misappropriation, compliance of applicable laws, rules and regulations and providing reasonable assurance against fraud and errors will continue to remain the central point of the entire control systems.

Cautionary Statement

Statements in this Management Discussion and Analysis Report describing the Companys objectives, estimates etc. may be "Forward looking statements" within the applicable laws and regulations. Actual results may vary from these expressed or implied; several factors that may affect Companys operations include Dependency on telecommunication and information technology system, Government policy and several other factors. The Company takes no responsibility for any consequences of the decisions made, based on such statements and holds no obligation to update these in future.