lincoln pharmaceuticals ltd Management discussions

Global Economy

Still suffering from the effects of more than two years of pandemic, the global economy is experiencing yet another major negative shock. Russias invasion of Ukraine has not only precipitated a humanitarian catastrophe— with thousands of civilians killed and millions more displaced—but also resulted in a deep regional slowdown and substantial negative global spillovers. These spillovers are magnifying preexisting strains from the pandemic, such as bottlenecks in global supply chains and significant increases in the price of many commodities. The effects of the invasion have also caused a further reduction in policy space, which is now much more limited than at the onset of the pandemic. Amid surging commodity prices and supply disruptions, inflation has soared across the world, exacerbating the exceedingly difficult tradeoffs policy makers face between supporting growth and controlling price pressures. Global financial conditions have tightened and borrowing costs have increased, particularly in emerging market and developing economies (EMDEs), reflecting reduced policy accommodation in response to inflationary pressures, elevated uncertainty, and heightened geopolitical risks. In addition, the unwinding of fiscal support measures has continued to weigh on global activity.

Against the backdrop of this significantly more challenging context, the world economy is expected to experience its sharpest deceleration following an initial recovery from global recession in more than 80 years. Global growth is projected to slow from 5.7 percent in 2021 to 2.9 percent in 2022 and average 3 percent in 2023-24, as Russias invasion of Ukraine significantly disrupts activity and trade in the near term, pent-up demand fades, and policy support is withdrawn amid high inflation The effects of the war— including more acute inflationary pressures and a faster pace of monetary tightening than previously assumed— account for most of the 1.2 percentage points downward revision to this years growth forecast. Growth projections for 2022 have been downgraded for most economies—including for the majority of commodity exporters despite improved terms of trade, partly due to higher input costs in nonenergy exporters. The cumulative losses to global activity relative to its pre-pandemic trend are expected to continue mounting over the forecast horizon, especially among EMDE commodity importers, as a result of lasting damage inflicted by more than two years of negative shocks

Due to the present situation, this could eventually result in a sharp tightening of monetary policy in advanced economies, which could lead to financial stress in some emerging market and developing economies. A forceful and wide- ranging policy response is required to boost growth, bolster macroeconomic frameworks, reduce financial vulnerabilities, and support vulnerable groups.

Despite the negative shock to global activity in 2022, there is essentially no rebound projected next year: global growth is forecast to edge up only slightly to a still-subdued 3 percent in 2023, as many headwinds—in particular, high commodity prices and continued monetary tightening— are expected to persist. Moreover, the outlook is subject to various downside risks, including intensifying geopolitical tensions, growing stagflationary headwinds, rising financial instability, continuing supply strains, and worsening food insecurity. These risks underscore the importance of a forceful policy response. The global community needs to ramp up efforts to mitigate humanitarian crises caused by the war in Ukraine and conflict elsewhere, alleviate food insecurity, and expand vaccine access to ensure a durable end of the pandemic. Meanwhile, EMDE policy makers need to refrain from implementing export restrictions or price controls, which could end up magnifying the increase in commodity prices. With rising inflation, tightening financial conditions, and elevated debt levels sharply limiting policy space, spending can be reprioritized toward targeted relief for vulnerable households. Over the long run, policies will be required to reverse the damage inflicted by the dual shocks of the pandemic and the war on growth prospects, including preventing fragmentation in trade networks, improving education, and raising labor force participation

Key Global Challenges

The global community needs to urgently step up efforts to limit the humanitarian cost of Russias invasion of Ukraine and armed conflicts in other parts of the world, such as through the coordinated delivery of emergency food, medical, and financial aid to war-torn areas. A concerted effort will also be required to equitably share the burden of housing and possibly relocating refugees displaced by war in Ukraine and conflict elsewhere (OECD 2022). Once the geopolitical situation has stabilized, coordinated efforts will be required to support and finance the reconstruction of war ravaged areas. One way to improve the economic effectiveness of reconstruction efforts is to offer grants rather than loans when appropriate, while closely aligning international support with the affected nations interests

The global community also needs to maintain efforts to end the COVID-19 pandemic, particularly in the poorest countries. Sustained collective action is required to bolster global pandemic preparedness and rapidly expand vaccination campaigns. Expanding vaccination coverage is a global priority—especially in LICs, where only about 14 percent of people have been fully vaccinated owing to a combination of insufficient supply, logistical challenges, and vaccine hesitancy. Much of the existing production capacity of vaccines continues to be allocated to vaccinations and boosters in higher- income countries.

Policymakers, moreover, should refrain from distortionary policies such as price controls, subsidies, and export bans, which could worsen the recent increase in commodity prices. Against the challenging backdrop of higher inflation, weaker growth, tighter financial conditions, and limited fiscal policy space, governments will need to reprioritize spending toward targeted relief for vulnerable populations.

Indian Economy

The global effect will surely have an impact on the Indian economy in the long run. Currently the Indian economy has fully recovered to the prepandemic real GDP level of 2019-20, according to the provisional estimates of GDP released on May 31, 2022. Real GDP growth in FY 2021-22 stands at 8.7%, which is 1.5% higher than the real GDP in FY 2019-20.

These figures are associated with stronger growth momentum, indicating increased economic demand. The investment rate in the fourth quarter increased to its highest level in the previous nine quarters. Moreover, capacity utilisation in the manufacturing sector rose in the fourth quarter, as against the third quarter, implying a build-up in demand, which is consistent with the growth objectives of the Indian economy.

Future capital spending of the government in the Indian economy is expected to be supported by factors such as tax buoyancy, streamlined tax system, thorough assessment and rationalisation of the tariff structure and digitisation of tax filing. In the medium term, an increase in capital spending on infrastructure and asset-building projects is set to increase growth multipliers. India has emerged as the fastest-growing major economy in the world, and is expected to be one of the top three economic powers globally over the next 10-15 years, backed by its robust democracy and strong partnerships.

Market Size

Indias nominal GDP at current prices was estimated at Rs. 232.15 trillion (US$ 3.12 trillion) in FY22. With more than 100 unicorns valued at US$ 332.7 billion, India has the third-largest unicorn base in the world. The government is also focusing on renewable sources to generate energy, and is planning to achieve 40% of its energy from non-fossil sources by 2030.

According to the McKinsey Global Institute, India needs to boost its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030 in order to increase productivity and economic growth. The net employment rate needs to grow by 1.5% per annum from 2023 to 2030 to achieve 8-8.5% GDP growth between this period. Indias current account deficit (CAD), primarily driven by an increase in the trade deficit, stood at 1.2% of GDP in 2021-22.

Recent Developments

India is primarily a domestic demand-driven economy, with consumption and investments contributing 70% to the countrys economic activity. With the economic scenario improving on recovering from the COVID-19 pandemic shock, several investments and developments have been made across various sectors of the economy. According to World Bank, India must continue to prioritise lowering inequality while also launching growth-oriented policies to boost the economy. In view of this, the country witnessed many developments in the recent past,

Government Initiatives

Over the years, the Indian government has introduced many initiatives to strengthen the nations economy. The government has been effective in developing policies and programmes that are not only beneficial for citizens to improve their financial stability but also for the overall growth of the economy. Over the recent decade, Indias rapid economic growth has led to a substantial increase in demand for exports. Moreover, many of the governments flagship programmes, including Make in India, Start-up India, Digital India, the Smart City Mission and the Atal Mission for Rejuvenation and Urban Transformation, are aimed at creating immense opportunities in India. In this regard, some of the initiatives taken by the government to improve the economic condition of the country. The Government has been working to revise the National List of Essential Medicines hoping that it would result in a better quality of medical care, better management of medicines and cost- effective use of healthcare resources.

Economic activity in India is holding up better than anticipated. Electrivity consumption, manufacturing PMI, exports, power supply and other high frequency indicators indicate that the pace of economic activity has fully recovered from the COVID-19 pandemic shock. Recent government initiatives to boost revenue will aid in containing the rise in the current account deficit and ensure that any potential fiscal slippage is adequately contained. According to a Boston Consulting Group (BCG) analysis, India is expected to be the third-largest consumer economy as its consumption may quadruple to US$ 4 trillion by 2025 due to changes in consumer behaviour and spending patterns. By 2040, India is anticipated to overtake the US to become the second-largest economy in terms of purchasing power parity (PPP), according to a report by PricewaterhouseCoopers.

Global Pharmaceutical Industry

The world pharmaceutical market was worth an estimated $1.2 trillion at ex-factory prices in 2020. It is one of the top performing industries globally. New medications are constantly being developed, approved and marketed, resulting in significant market growth. The FDA approved 55 novel drugs in 2021. Other market growth drivers include the aging population, as seniors use more medicines per capita and there is a rise in the prevalence and treatment of chronic diseases.

Immunology, oncology and neurology are the fastest-growing therapy areas and are expected to be the main sources of growth through 2026. The biologics market is growing at significant rate and is expected to continue outstripping that of small molecules in the coming decade. The three largest biologic therapy areas include oncology, autoimmune and diabetes.

The U.S. dominates the global pharmaceutical markets, accounting for almost half of pharmaceutical sales globally in 2021. However, the industry faces many challenges including regulatory hurdles, escalating R&D costs, and competition from generic drugs and biosimilars.

The pharmaceutical industry, one of the most profitable industries in the world, is under significant pressure to bring in cost- effective and innovative drugs. The discipline of precision medicine and genomic medicine has gained significant interest from researchers and healthcare providers globally. Already, it is making an impact in the fields of oncology, pharmacology, rare and undiagnosed diseases, and infectious disease, and its popularity is expected to grow significantly in coming years.

Sensing the huge opportunity in the field of precision medicine and genomic medicine, several big pharma companies have been making huge investments to expand their precision and genomic medicine portfolios and pipelines. The number of personalized drugs is expected to double or even triple in the upcoming years.

Indian Pharmaceutical Industry

Indian pharmaceutical industry is known for its generic medicines and low-cost vaccines globally. Transformed over the years as a vibrant sector, presently Indian Pharma ranks third in pharmaceutical production by volume.

Indian pharma companies enabled by their price competitiveness and good quality, have made a global mark, with 60 per cent of the worlds vaccines and 20 per cent of generic medicines coming from India..The current market size of the domestic pharmaceutical industry is around USD 50 billion.

In the last nine years, Indian Pharma sector has grown steadily by CAGR of 9.43%. Pharma sector has been consistently earning trade surplus. Major segments of the Indian Pharmaceutical Industry include generic drugs, OTC medicines, bulk drugs, vaccines, contract research & manufacturing, biosimilars and biologics. Indian pharmaceutical industry also plays significant role globally. India has the highest number of United States Food and Drug Administration (USFDA) compliant Pharma plants outside of USA.

The share of pharmaceuticals and drugs in the global exports is 5.92 per cent.Formulations and biologicals continue to account for a major share of 73.31 per cent of the countrys total exports, followed by bulk drugs and drug intermediates. The foreign direct investment (FDI) inflows in the Indian drugs and pharmaceuticals sector reached US$ 1,414 million between in FY 2021-22. The Indian pharmaceutical industry generated a trade surplus of US$ 15.81 billion in FY22.

Exports have touched Rs 1,83,422 crore in 202122 against Rs 90,415 crore in 2013-14. The exports in 2021-22 sustained a positive growth despite the global trade disruptions and drop in demand for COVID related medicines.

There are 500 API manufacturers contributing about 8% in the global API Industry. India is the largest supplier of generic medicines with 20% share in the global supply by manufacturing 60000 different generic brands across 60 therapeutic categories. Access to affordable HIV treatment from India is one of the greatest success stories in medicine. India is one of the biggest suppliers of lowcost vaccines in the world. Because of the low price and high quality, Indian medicines are preferred worldwide, thereby rightly making the country the "pharmacy of the world".

The Indian pharma industry has also played an important role in meeting the challenges for mitigation of the infection in COVID pandemic. The industry worked in close collaboration with the government and academic institutes etc., to quickly develop and refine manufacturing processes which helped to ensure a consistent supply of medicines needed for the management of COVID-19 (e.g. Remdesivir, Ivermectin, Hydroxychloroquine, Dexamethasone,

Tocilizumab, Favipiravir etc.). Indian drug supplies throughout the COVID-19 pandemic period have provided relief to over 120 countries for Hydroxychloroquine (HCQ), 20 countries for paracetamol and about 96 countries for vaccines across the world.

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.

Lincoln Pharmaceuticals Limited is of the leading companies in pharmaceutical industry, engaged in the business of manufacturing of Tablets, Capsules, Dry Syrup, Liquid Vials, Injectables and Ointments etc. Company is also building a strong portfolio in lifestyle and chronic segment especially in women healthcare and dermatology to complement our strong presence in acute segment. The Company has developed 600 plus formulations in 15 therapeutic areas and has a strong product/brand portfolio in anti-infective, respiratory system, gynaecology, cardio & CNS, anti-bacterial, ant-diabetic, anti-malaria among others.

Company has a strong presence in domestic market with good strength of own field force and also exports to more than 60 countries. Company has filed 25 plus patent applications and is awarded with seven patents. Lincoln Pharma has a state-of-the-art manufacturing facility unit at Khatraj in Ahmedabad, Gujarat, complying with stringent international quality and compliance norms and certified by EUGMP, WHO-GMP and IS0-9001: 2015. With the EU certification, company will expand its business network to 90 plus countries. Company currently exports to 60 plus countries including East & West Africa, Central & Latin America and Southeast Asia and has got many product registrations in these countries and is also awarded with number of global tenders.

Our Formulation Development team works on new active substances, generics, trouble shooting of existing products and patent non infringing products for Emerging markets and Domestic market.In our R&D centre we are developing all the dosage form of the pharmaceutical products like, 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 formulation, etc.

Financial Operations

Revenue & Margins

Lincoln Pharmas performance has been significantly good with revenue increasing to Rs.472.1 crore in 2021-22 as against Rs.422.9 crore in 2020-21 showing a 11.63% increase. Net Profit has increased to Rs.69.4 crore in 202122 as against Rs.62.3 crore in 2020-21.EBITDA has shown a significant growth to Rs.105.5 crore as against Rs.92.8 crore in 2020-21, increase of 13.67%.The companys Net Worth has significantly increased to Rs.432.9 crore in 202122 from Rs.366.4 crore in 2020-21.

Ratios

EBITDA Margin has increased to 22.3% in 202122 as against 21.9% in 2020-21.PAT margin has been maintained at 14.7% for 2020-21 & 202122. PBT has shown a growth of 14.65%.ROCE has shown a slight decline of 0.7% in 2021-22 (21.9%) from 22.6% in 2020-21. RONW has declined by 1% between both the years (202122 - 16% and 2020-21 - 17%)

Non Financial Operations

Over the last 10 years, company has delivered a robust 30% CAGR in profits, higher single digit growth in sales. For FY 22-23 company is looking at maintaining a healthy growth in Sales, EBITDA and Net profit margins. CRISIL has also upgraded its ratings on the companys bank facilities to CRISIL A/Stable/CRISIL A1. ICRA has reaffirmed the companys long-term and short-term bank facilities to A and A1 respectively

During the year, we invested heavily on our R&D division for developing more specialty products. These strategic moves will support us in moving up the pharmaceutical value chain. We are also concentrating at creating a broader pipeline of product offerings for both emerging and developed markets. Consolidation and enhanced presence within our key markets continue to be the focal point of our strategies.

We, at LPL, understand the importance of every little effort as it contributes towards the bigger picture. The company is moving at a considerable pace to advance in the pharmaceutical space.

We are confident to improve our growth numbers in FY 23. Company will continue to grow with maintaining its net debt status in future also.

Achievement Highlights:

• Secured a patent for Diclofenac Rectal Spray

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

• Producing renewable energy for captive consumption

• Aggressive international operations in Africa and SouthEast Asia.

• Received EU GMP certificate to conduct business in the European Union.

• To amalgamate, synergise & enhance Lincoln Parenteral Limited and Lincoln Pharmaceuticals Limited operations thus leading to competitive strength, cost-effectiveness and productivity

• Set up API production unit and Cephalosporin Plant

Future Roadmap

Going ahead, Lincoln Pharmaceuticals Limited is dedicated to expanding its product portfolio by developing value-adding products in the lifestyle and chronic segments, especially for women and skincare. Dermatology to complement its strong presence in the acute segment. Build specialty products and gain more patents and increase focus on research and development.

Human Resources

With a work force of 700, which includes 78 R&D professionals and 30 scientists, we have a robust team of professionals and other stake holders who help us in achieving the companys strategies and goals. 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 maximizing their productivity.

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.

Internal control and 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.