Mercury Laboratories Ltd Management Discussions.

MANAGEMENT DISCUSSIONS AND AN ALYSIS

As stipulated by regulation 34(3) read with Schedule V(B) of the Listing Regulations, Management Discussion and Analysis forms parts of this report.

a) Industry Structure and Development

The Governments concerted push towards the pharma sector through initiatives such as Make in India, Ayushman Bharat Scheme, National Digital Health Mission etc., has cemented India as a leading global capital market. Production linked incentive (PLI) scheme for the pharma industry worth 15,000 crores ($2.04 billion) to promote domestic manufacturing of critical key starting materials (KSM), drug intermediates, and active pharmaceutical ingredients (APIs) making India a leading supplier. The Government has approved a total of 33 applications with a committed investment of Rs.5,082.65 crores under a separate PLI scheme for APIs Increased thrust on rural health programmes, lifesaving drugs and preventive vaccines Plan for a mega bulk drug parks to reduce raw material dependence on imports The Union Budget 2021-22 saw an unprecedented increase in allocation for health sector like Increased spending on healthcare from 1.2% of the GDP to 2.5% of the GDP 64,180 crores allocation for the Atmanirbhar Swasth Bharat Yojana for development of primary, secondary, and tertiary healthcare over a period of six years, 2,23,846 crores budget outlay for health and well-being for FY 2022, an increase of 137% over previous year, 35,000 crores outlay for Covid-19 vaccines and national rollout of pneumococcal vaccines to help save over 50,000 lives annually ,6,429 crores for health insurance scheme, Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana Key growth factors of the pharma sector The Indian pharma sector growth looks promising given strong Government focus on improving accessibility, increasing affordability and growing acceptability of pharma. The Government has taken several initiatives like massive inoculation drive, Atmanirbhar Swasth Bharat Yojana to develop capacities of primary, secondary, and tertiary healthcare systems, focus on Medical Value Travel, launch of PM-JAY to increase penetration of health insurance, $200 billion investment on medical infrastructure over 10 years, Ayushman Bharat Yojana, Pradhan Mantri Bhartiya Janaushadhi Pariyojana, focus on medical education etc.

b) Outlook, Risks and Concerns

While the outlook for the business environment gradually improved, the second wave of COVID-19 emerged in India in April and May 2021 and its economic impact remains uncertain. Although our clients are better prepared to address the challenges, we continue to remain vigilant across our portfolio to mitigate any potential risks by supporting our clients to ensure construction progress across the projects in our portfolio. We believe that our provisions should be enough to take care of future contingencies that may arise due to COVID-19.

World economic overview

The year 2020 posed significant challenges for economies across the globe with lockdowns posing a threat of deep recession. However, sizeable, swift and unprecedented fiscal, monetary and regulatory responses by most Governments helped to maintain disposable income for households, protect cash flow for firms, and support credit provision. The global contraction for 2020 is estimated at 3.5%, led by Chinas quick recovery and better than expected GDP outturns in large advanced economies.

New large economies have raised hopes of a turnaround in 2021 with growth expectations of 5.5% followed by 4.2% in 2022. Across countries, recovery levels may vary significantly depending on access to medical interventions, effectiveness of policy support, exposure to cross-country spill overs, and structure

Global Pharma Market

The demand for healthcare and innovative solutions is growing globally with chronic diseases on the rise. The global pharmaceuticals market is expected to grow from $1,228.45 billion in 2020 to $1,250.24 billion in 2021 at 1.8% CAGR. The slowdown in growth is mainly due to the companies rearranging their operations and recovering from the Covid-19 impact, which had earlier led to restrictive containment measures involving social distancing, remote working, and the closure of commercial activities causing operational challenges. The market is expected to reach $1,700.97 billion in 2025 at 8% CAGR.

North America was the largest region in the global pharmaceuticals market, accounting for 46% of the market in 2020, owing to increasing prevalence of chronic diseases and skyrocketing number of Covid-19 cases in the US. Asia-Pacific was the second largest region accounting for 26% of the global pharmaceuticals market. Africa was recorded as the smallest region in the global pharmaceuticals market. The global pharmaceuticals market is projected to rise at a considerable pace driven by the increasing investments in product R&D. The efforts put in to develop efficient products will bode well for the growth of the overall market in the coming years.

c) Financial Performance and Operation Review

During the year under review, the Company yielded Revenue from operations of INR 6860.15 lacs and earned Gross Profit before depreciation, interest and tax of INR 1047.10 lacs with Net Profit of INR 533.75 Lacs as against Revenue from operations of INR 5726.91, Gross Profit before depreciation and Interest and tax of INR 701.54 lacs with Net Profit of INR 322.81 Lacs of previous year, respectively.

The Companys business in the emerging markets also suffered due to significant currency fluctuations and regulatory issues. The Company is implementing comprehensive remedial measures at all its manufacturing sites to ensure quality and regulatory compliances. These remedial measures included review of all processes and procedures revamping of training system, recruitment of senior quality personnel as well as automation of quality control laboratories. Your company is committed in resolving these issues at the earliest. The Company is also committed to its philosophy of highest quality in manufacturing, operations, system, integrity and GMP culture. Your management is confident that implementation of remedial measures will ensure that the company will regain all its regulatory approvals.

Rs. in Lacs
Break-up of Sales 2020 - 21 2019-20 Growth/In terms of Value Degrowth) In terms of %
Domestic 3492.10 3851.16 (359.06) -9.32
Erga Sales 0 67.17 (67.17) (100.00)
Grace Division 254.62 0.00 254.62 100.00
Deemed Exports 1301.34 874.34 427.00 48.84
Direct Exports 1812.08 934.25 877.83 93.96
Total 6860.14 5726.92 1200.39 133.48

During the financial year under report, the domestic sales of products of the Company amounted to INR 5048 lacs as against INR4792.67 lacs in the previous year which reflect Increase of 5.33% and in value INR 255.39 Lacs. Whereas the International Business (export) amounted to INR 1812.1 Lacs as against INR 934.25 lacs in the previous year which was Increase by 93.96% and in value INR 877.83 Lacs.

d) Internal Control System and its adequacy

The Company has adequate internal control system including suitable monitoring procedures commensurate with its size and the nature of the business. The internal control system provide for all documented policies, guidelines, authorization and approval procedures. The Company has an internal auditors which carries out audits throughout the year. The statutory auditors while conducting the statutory audit, review and evaluate the internal controls and their observations are discussed with the Audit Committee of the Board. Further the Company has in place adequate Internal Financial Controls with reference to financial statements. During the year, such controls were tested and no reportable material weakness in the design or operations were observed.

e) Human Resources

The human resources 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. At the core of our success are our people and have been working towards keeping them engaged and inspired.

During the year under review, various trailing and development workshops were continued to be conducted to improve the competency level of employees with an objective to improve the operational performance of individuals. The company has built a competent team to handle challenging assignments.

The Company strives to enhance the technical work, related and general skills of employees through dedicated training programs on a continuous basis. The Company has 660 employees as on March 31,2021.

f) Formulation and Developments

Company always considering Formulation and Development as crucial for sustain growth of the Company. Company always try to introduce newer and newer drugs delivery system for ensuring products available as regard to time and enhancing therapeutic value.

To achieve this objective we have experienced and qualified pharmacists whose activity is to maintain and find out newer and newer delivery system as well as re-engineering innovative process. This will held the Company to maintain material consumption ration.

g) Cautionary Statement

Certain statement in the management discussion and analysis may be forward looking within the meaning of applicable securities law and regulations and actual results may differ materially from those expressed or implied. Factors that would make differences to companys operations include competition, price realization, Drugs Price Controls, currency fluctuations, regulatory issues, changes in government policies and regulations tax regimes, economic development within India and the Countries in which the company conducts business and other incidental factors.