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Lincoln Pharmaceuticals Ltd Management Discussions

Jul 16, 2024|12:00:00 AM

Lincoln Pharmaceuticals Ltd Share Price Management Discussions

Global Pharmaceutical Industry

In 2022, the global pharmaceutical and biotech sector experienced a resurgence of innovation-driven growth as demand normalised after Covid-related disruptions. While new treatments thrived, they faced increased regulatory attention regarding access and drug pricing. Business models in the industry specialised around three core pillars: innovative pharma, generics, and consumer health, streamlining operations and focusing on core strengths. Active portfolio management, targeted M&A, and divestments allowed companies to allocate resources for innovation. Research and development productivity became vital, prompting a more selective approach with partnerships favoured over outright M&A. Despite public financial pressure, most Fitch-rated global pharma companies entered 2023 with comfortable rating headroom, aided by the simplification of business models. Total debt/EBITDA was projected to trend back to historical averages by 2024, and cash flow generation was expected to remain stable. The sectors rebound offered significant investment opportunities, attracting private equity capital, particularly in consolidating European markets.

Based on the provided data on Global Pharmaceuticals by Fitch Rating, the mean credit metrics for the years 2021 to 2024 ( advance forecast ) the performance and projection of the global pharma industry is as follows: Revenue Growth: The global pharmaceutical industry experienced robust revenue growth in 2021, with a significant increase of 7.1%. However, the growth rate slowed down in the subsequent years, with projected figures of 3.2% for 2022, 3.5% for 2023, and 4.2% for 2024. This deceleration suggests that the industry faced challenges in sustaining the high growth rate from 2021, possibly due to increasing competition, regulatory hurdles, or market saturation.

EBITDA Margin: The EBITDA margin, a measure of a companys operating profitability, remained relatively stable over the forecast period. It started at 32.4% in 2021 and projected decreased to 30.3% in 2024. This decline in EBITDA margin could be attributed to various factors, including rising operating costs, pricing pressures, or the need for increased investments in research and development for innovation.

FCF Margin: The Free Cash Flow (FCF) margin, which indicates the amount of cash generated after accounting for capital expenditures, showed a decreasing trend over the years. Starting at 11.3% in 2021, it was projected to decline to 8.4% in 2024. This suggests that the industry faced challenges in maintaining healthy cash flow levels, possibly due to higher capital expenditures or increased debt obligations.

Leverage: The leverage ratio, which measures the level of a companys debt relative to its EBITDA, remained stable throughout the forecast period, hovering around 2.2 to 2.3 times. This indicates that the industry maintained a relatively conservative approach to debt management, with a consistent level of leverage.

Overall, the data suggests that the global pharmaceutical industry experienced strong revenue growth in 2021 but faced challenges in maintaining the same growth momentum in the subsequent years. As the EBITDA margin indicates, the industrys profitability also saw a slight decline over the forecast period, potentially due to increased costs and competitive pressures. Additionally, the decreasing Free Cash Flow margin indicates that companies may have encountered difficulties in generating sufficient cash flow after accounting for capital investments. However, the industrys prudent approach to debt management is evident from the stable leverage ratio, indicating a cautious financial stance.

Indian Pharmaceutical Industry

India is renowned as the largest provider of generic drugs globally, offering affordable vaccines and generic medications. Over time, the Indian Pharmaceutical industry has evolved into a thriving sector, experiencing a Compound Annual Growth Rate (CAGR) of 9.43% for the past nine years. Major segments of the Indian pharma industry include generic drugs, over-the-counter medications, bulk drugs, vaccines, contract research & manufacturing, biosimilars, and biologics. Notably, India stands as the third-largest producer of pharmaceuticals by volume. The countrys pharmaceutical manufacturing facilities hold a significant distinction, with the highest number of US Food and Drug Administration (USFDA) compliant facilities globally, and its 500 Active Pharmaceutical Ingredient (API) producers collectively contributing around 8% of the worldwide API market.

The Indian pharmaceutical sector plays a vital role in meeting global healthcare demands, supplying over 50% of the worlds vaccines, 40% of generic drugs in the US, and 25% of all medicines in the UK. Domestically, the industry boasts an extensive network of approximately 3,000 drug companies and 10,500 manufacturing units. Indias position in the global pharmaceuticals sector remains significant, with ample potential for further growth. Notably, Indian pharmaceutical firms supply more than 80% of the antiretroviral drugs used globally to combat AIDS, reinforcing Indias reputation as the "pharmacy of the world" due to its low-cost, high-quality medicines. Forecasts indicate a promising future, with the Indian pharmaceutical market estimated to reach US$ 130 billion by the end of 2030. Despite global challenges, Indias pharmaceutical industry has demonstrated resilience, with robust growth rates and increasing contributions to the countrys GDP.

Pharma Exports from India:

Indias pharmaceutical exports have demonstrated resilience and continued their upward trajectory, reaching an impressive $25.3 billion, approximately Rs 2,08,231 crore, in the financial year 2022-23, as reported by the Pharmaceuticals Export Promotion Council of India (Pharmexcil), a division of the Ministry of Commerce and Industry. Amidst occasional setbacks and fluctuations in growth rates, the industrys steadfastness prevailed, witnessing growth in eight months and encountering a decline in four months. Despite these challenges, the sector surpassed its previous record of $24.5 billion (about 2,01,673 crore) by an encouraging 3.25%. The industry aims to bolster its standing as a reliable and reputable supplier of high-quality pharmaceutical products in the global market, emphasising continuous improvement and adherence to stringent quality standards.

About the Company

Lincoln Pharmaceuticals Limited is a dynamic and forward-thinking pharmaceutical manufacturer dedicated to driving progress within the industry through groundbreaking innovation, adept business strategies, and utmost customer satisfaction. As a leading producer of pharmaceuticals, we specialise in manufacturing and promoting a wide range of therapeutic molecules in line with WHO-GMP guidelines, catering to both domestic and international markets. Our premium-quality drugs are developed with the highest standards and are made available at highly competitive prices to serve the wider population. Established in 1979, our company has emerged as a prominent player in the field of branded generics, renowned for providing affordable and innovative medicines that contribute to healthier lives. With our state-of-the-art R&D and manufacturing facilities in Ahmedabad, we are steadfastly working towards our vision of "Healthcare for All." Notably, our manufacturing units have been granted European Union (EU) GMP certification, granting us marketing rights for our products in all 27 EU member nations and access to the European Economic Area (EEA) countries. Lincoln Pharmaceuticals Limited sets itself apart in the industry with its cutting-edge R&D capabilities, spearheaded by a team of over 40 dedicated scientists. Our ongoing commitment to research has resulted in the filing of 25+ patents and the receipt of seven patents. Recognised by the Department of Scientific and Technology and the Government of India, our advanced devices and equipment enable comprehensive internal physical, chemical, and microbiological analyses of all our products. At the forefront of pharmaceutical manufacturing, we specialise in a diverse portfolio of products, including Tablets, Capsules, Dry Syrup, Liquid Vials, Injectables, and Ointments. In addition to our strong presence in the acute segment, we are also expanding our portfolio in lifestyle and chronic segments, particularly focusing on womens healthcare and dermatology.

Our dedication to global outreach is evident through our presence in over 60 countries, with a well-established export network and a robust domestic market presence. With a strong field force and strategic partnerships, we continue to serve numerous markets worldwide. Moreover, our commitment to innovation is reflected in our numerous patent applications and awarded patents. At our cutting-edge R&D centre, our skilled Formulation Development team works diligently on new active substances, and generics, troubleshooting existing products, and developing patent non-infringing products, particularly tailored for emerging markets and the domestic market. We have a comprehensive range of pharmaceutical dosage forms, including Immediate-release tablets, Delayed release tablets, Extended-release tablets, Hard gelatin Capsules, Soft gelatin capsules, Liquid orals – syrup, Dry syrup, Powder in sachet, Suspension, Semi-solid – Creams, Gel, Ointments, Small & Large volume parental, Oral & Topical sprays formulations, etc.

Khatraj Plant: Lincoln Pharmas Khatraj Plants Dist. Gandhinagar having two units in Gujarat boasts provide best-in-class facilities and certifications, making it a standout in the pharmaceutical industry. The plant is certified with EU-GMP, WHO-GMP, TGA, ISO-9001:2015, ISO-14001:2015 and ISO-45001:2018 and guarantees top-notch quality and compliance with international standards. The R&D center, approved by the Government of India, houses a team of over 30 dedicated scientists focused on innovation and research. Emphasising sustainability, the plant incorporates green energy solutions, including windmills and 1MW solar roof that collectively produce 65% of the companys energy consumption. The manufacturing capabilities at Khatraj Plant comes with an extensive annual capacity for various dosage forms. From tablets, capsules, and bottles to tubes, oral liquids, and vials, the plant demonstrates versatility and efficiency in catering to diverse healthcare needs. With Lincoln Pharmas commitment to cutting-edge technology and sustainable practices, the Khatraj Plant stands as a symbol of excellence in pharmaceutical manufacturing.

MehsanaPlant:Located in Mehsana, Gujarat, our pharmaceutical manufacturing unit offers best-in-class facilities and certifications, making it a trusted choice in the industry. The facility holds WHO GMP certification, ensuring adherence to stringent global quality standards, and is also ISO 9001:2015 certified, reflecting our commitment to maintaining excellence in operations. Our unit is equipped with a dedicated Research and Development (R&D) center, staffed by a team of more than 10 skilled scientists. Their expertise and innovative approach drive our constant pursuit of breakthroughs and new pharmaceutical advancements. Our facility caters to various dosage forms, including tablets, capsules, bottles, vials, and tubes.

Highlights of the company: Company overview:

Established in 1979

Developed 600 formulations in 15 therapeutic areas

The product portfolio includes 1700 registered products and 700 in the pipeline Manufacturing facilities in Khatraj, and Mehsana in Gujarat Exports contribute 57.4% in FY23; Domestic Sales contribute 42.6% Listed on BSE in 1996 and NSE in 2015

Research & Development:

Awarded 7 patents and filed 25+ patent applications DSIR-approved R&D facilities 75 R&D professionals, including 30 scientists

Focused areas include the anti-effective, respiratory system, gynaecology, cardio & CNS, anti-diabetic, and anti-malaria among others

Financials & Ratings:

Market capitalisation of Rs. 678 crores as of 31 Mar 2023 5-year net profit CAGR of 16% Cash and cash equivalents at Rs. 5.05 crore as of 31 Mar 2023 Team strength of approx 1,700 employees FY23 Total Income at Rs. 532.8 Crore & PAT at Rs. 72.9 crore CRISIL upgraded ratings to CRISIL/A/Stable/CRISIL A1 ICRA reaffirmed long-term and short-term bank facilities ratings to A and A1 respectively

Global Presence:

Exports to 60 plus countries currently, with plans to expand to 90 countries in the next 2-3 years Major export markets include East & West Africa, Central Latin America, and South East Asia EU GMP, WHO GMP, TGA, and ISO 9001:2015 certified sustainability & Green Initiatives:

Green facility producing 65% of energy consumption through renewable Solar Wind Project Book Value is Rs. 250.86 per share as of 31 Mar 2023

Domestic and Exports sales

In FY23, Company demonstrated a well-balanced revenue distribution between domestic and export markets. Domestic sales amounted to Rs. 220.34 crore, constituting 43.2% of the total revenue. The companys strong presence across 26 states in India indicates a significant market penetration within the country. On the other hand, the export sales for FY23 reached Rs. 293.11 crore, contributing 57.4% to the total revenue. Lincoln Pharmas expansive global reach spans over 60+ countries, encompassing key regions such as Europe, Latin America, Africa, Asia Pacific, and South East Asia. This extensive international presence highlights the companys successful efforts in establishing a strong foothold in diverse and competitive markets worldwide. With a balanced revenue mix and a robust distribution network, Lincoln Pharma is well-positioned for continued growth and success in both domestic and global markets.

Review of Performance

Lincoln Pharmas FY23 annual performance exhibited steady growth across multiple financial metrics, including Total Income, EBITDA, PBT, PAT, and Basic EPS. The positive performance showcases the companys ability to adapt to market dynamics, capitalise on opportunities, and maintain its growth trajectory. However, further in-depth analysis, including a comparison with industry peers and market trends, would be required to comprehensively understand Lincoln Pharmas performance in the context of the broader pharmaceutical sector.

Total Income:

The total income for FY23 increased to Rs. 532.8 crore, showing a significant growth of 10.5% compared to FY22.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization):

The EBITDA for FY23 reached Rs. 111.7 crore, registering a growth of 5.9% compared to FY22.

PBT (Profit Before Tax):

The PBT for FY23 amounted to Rs. 100.5 crore, reflecting a growth of 4.7% compared to FY22.

PAT (Profit After Tax):

The PAT for FY23 reached Rs. 72.9 crore, representing a growth of 5.1% compared to FY22.

Basic EPs (Earnings Per share):

The Basic EPS for FY23 stood at Rs. 36.4, reflecting a growth of 5.1% compared to FY22.


EBITDA Margin:

PAT Margin :
- FY22: 21.9% -FY22 : 14.4%
- FY23: 21.0% -FY23 : 13.7%

Return on Capital

Return on net Worth

Employed (RoCE)

- FY22: 21.9% -FY22: 16.0%
- FY23: 19.9% -FY23: 14.5%

Growth Plans and outlook

Lincoln Pharma is strategically positioning itself for substantial growth and expansion in the pharmaceutical industry. With successful expansion initiatives at the Cephalosporin plant in Mehsana, Gujarat, the company anticipates commencing commercial production very soon. This plant is projected to contribute approximately Rs. 150 crore sales over the next three years. Moreover, Lincoln Pharma is poised to extend its global footprint, with plans to start exporting to the EU soon. The company aims to enhance its export network to cover over 90 countries, up from the current 60. The recent approval from Australias Therapeutic Goods Administration (TGA) for the Khatraj Plant and existing WHO-GMP approvals reinforces its presence in the international markets. Supported by healthy cash accruals, a net debt-free status, and strong return ratios, the companys liquidity position stands on a robust foundation.

Additionally, the company remains committed to expanding its product portfolio, especially in lifestyle, womens healthcare, and dermatology segments, while maintaining a dominant presence in the acute segment.

In FY23, Lincoln Pharma achieved significant milestones, surpassing Rs. 500 crore in revenue and Rs. 100 crore in Profit Before Tax (PBT) for the first time. The upcoming commercial operations of the Cephalosporin Plant and export opportunities to the EU and Australia are expected to fuel the companys growth further. Lincoln Pharma aims to sustain healthy growth in sales, EBITDA, and net profit margins while maintaining its ‘Net Debt Free status. Looking ahead, the company has set ambitious targets, striving to achieve Rs. 750 crore in revenue by FY26, while concurrently focusing on maintaining or enhancing its margins. These growth plans and positive outlook underscore Lincoln Pharmas commitment to advancing its position as a key player in the pharmaceutical industry and expanding its global market presence.

Risk Management

Apart from the general business risks and industry-related risks, there would be several other risks such as foreign exchange fluctuations, regulatory policy changes etc. As and when the risk is identified the same will be reviewed at the concerned department level to take necessary steps or will be brought to the notice of management to address the issue. 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. statement on Internal Control systems

The internal control systems of Lincoln Pharmaceuticals Ltd, as described in this statutory statement, play a crucial role in upholding the integrity of our operations. These systems are meticulously crafted to ensure the accuracy and reliability of our financial reporting and fortify the protection of our valuable assets. By promoting operational efficiency and adherence to applicable legal and regulatory frameworks, these systems are a cornerstone of our commitment to ethical business practices. Our comprehensive approach encompasses various components, including fostering a positive control environment, conducting thorough risk assessments, implementing robust control activities, maintaining effective information and communication channels, and diligently monitoring the systems performance. The ultimate responsibility for the success of these internal control mechanisms rests with our dedicated Board of Directors and capable senior management, who consistently oversee their development, implementation, and overall effectiveness. While these systems are designed to provide reasonable assurance, we acknowledge that unforeseen circumstances and evolving risks can influence their efficacy. With this statement, we aim to provide stakeholders with insights into our steadfast dedication to maintaining a robust internal control framework.

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.


sR no. Particulars

2022-23 2021-22
1. Debtors Turnover (Days) 97 89
2. Inventory Turnover (Days) 106 121
3. Interest Coverage Ratio 55.03 72.69
4. Current Ratio (Times) 5.09 3.91
5. Debt Equity Ratio (Times) NIL NIL
6. Operating Profit Margin (%) 41.9% 43.9%
7. Net Profit Margin (%) 13.7% 14.4%
8. Return on Net Worth (%) 14.5% 16.0%

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