Economic overview
Global economy
The global economy has been experiencing a period of uncertainty, with
projected growth rates suggesting a rather cautious outlook. From an estimated 3.4% in
2022, growth is expected to slow down to 2.9% in 2023 before gradually recovering to 3.1%
in 2024. The current economic environment is influenced by several factors, including
central bank rate hikes aimed at tackling inflation and the ongoing conflict in Ukraine
involving Russia, which have put a damper on economic activity.
Inflationary pressures continue to pose a significant challenge for the
global economy. Inflation is projected to fall from 8.8% in
2022 to 6.6% in 2023 and further to 4.3% in 2024, remaining above
pre-pandemic levels of around 3.5%. While the balance of risks remains tilted to the
downside, there are still plausible scenarios that could lead to an upward trend, such as
stronger demand from various economies or a faster decline in inflation. Conversely,
severe health outcomes in China, an escalation of the conflict in Ukraine, and tighter
global financing costs could all have adverse effects on the economic
recovery.Moreover,suddenshiftsin markets in response to adverse inflation news and further
geopolitical fragmentation could impede economic progress.
In summary, the global economy is expected to see a modest growth rate
in FY23, with various factors influencing the outlook. While there is hope that pent-up
demand in several economies and a gradual decline in inflation will drive growth,
policymakers will need to navigate the challenges posed by geopolitical uncertainties to
maintain economic stability. Overall, the current situation calls for a careful assessment
of the risks and opportunities, and a proactive approach to promote sustainable economic
growth.
Sources: https://www.imf.org/en/Publications/WEO/
Issues/2023/01/31/world-economic-outlook-update-january-2023#:~:text=Global%20growth%20is%20projected%20
to,19)%20average%20of%203.8%20percent.
MD&A
Indian economy
The Indian economy has demonstrated impressive resilience despite
facing a triple shock of COVID-19, geopolitical uncertainties, and rising inflation.
According to agencies worldwide, India is projected to maintain its position as the
fastest-growing major economy with an expected growth rate of 6.5-7.0% in FY23, led
primarily by private consumption and capital formation.
The successful rollout of the worlds second-largest vaccination
drive, involving over 2 billion doses, has lifted consumer sentiment and contributed to
the rebound in consumption. Additionally, capital expenditure by the central government,
which increased by 63.4% in the first eight months of FY23, has been another driving force
behind Indias economic growth. The declining urban unemployment rate and faster net
registration in the Employee Provident Fund demonstrate the positive impact of this growth
on employment.
The Indian economy is expected to maintain its growth momentum in FY24
as credit disbursal and capital investment cycles gain momentum, further supported by the
expansion of public digital platforms and path-breaking measures such as the PM
GatiShakti, National Logistics Policy, and Production-Linked Incentive schemes to boost
manufacturing output. The Survey notes with optimism that the Indian economy has moved
beyond its encounter with the pandemic and staged a full recovery in FY22, positioning
itself to ascend to the pre-pandemic growth path in FY23. While challenges such as rising
inflation and geopolitical uncertainties remain, the
Indian economys demonstrated resilience and strong fundamentals
have positioned it well to navigate these challenges and maintain its growth trajectory.
Industry overview
Global pharmaceutical industry
The pharmaceutical industry is on the brink of a revolutionary
transformation, with soaring investments and technological advancements steering its
growth towards unprecedented heights. The global pharmaceutical manufacturing
markets size is expected to reach an astronomical $1.57 trillion by 2023. Such a
remarkable surge in market value is fuelled by the expanding and ageing global population,
coupled with improving access to quality healthcare and medication for lower-income
households.
According to United Nations World Population
Prospects, the world population is anticipated to surpass 9.3 billion
by 2050, and 21% of this populace is projected to be aged 60 and above. As the ageing
population rises, it leads to a surge in the demand for drugs to manage age-related
illnesses, further amplifying the growth of the pharmaceutical industry. In addition, the
increasing global focus on improving purchasing power and access to quality healthcare has
bolstered demand for pharmaceutical products. The advancements in robotic technology and
artificial intelligence have significantly reduced the manufacturing floor downtime and
production of product waste, which have further boosted the industrys growth.
Moreover, the industry is witnessing a paradigm shift towards data-rich, smart, and
paperless operations, resulting in precise and error-free production.
The pharmaceutical industrys ongoing developments have brought
about a significant transformation in the way drugs are manufactured and delivered
worldwide, and the industrys growth shows no signs of slowing down. The market is
highly competitive, and pharmaceutical companies are continually striving to tap the rare
and specialty diseases market, a sector with massive potential. With an estimated CAGR of
11.34% from 2021 to 2028, the pharmaceutical manufacturing market is poised to continue on
its upward trajectory, driven by the soaring demand for drugs worldwide, technological
advancements, and growing investments.
Sources:
https://www.globenewswire.com/news-release/2020/01/17/1972092/0/en/
Global-Pharmaceuticals-Industry-Analysis-and-Trends-2023.html
https://www.grandviewresearch.com/industry-analysis/pharmaceutical-manufacturing-market
Industry highlights
North America is predicted to maintain its dominant position with a
market share of 45.33% in 2023, representing an increase compared to 2017.
Europe, on the other hand, is anticipated to experience a decrease in
its market share compared to 2017 and be valued at 20.24% of the global pharma industry in
2023.
Asia Pacific is projected to retain its second position with a market
share of 24.07% in 2023.
Latin America is expected to hold a 7.53% market share of the global
pharmaceuticals market in 2023.
Middle East and Africa (MEA) is anticipated to retain a 20.24% market
share of the global pharmaceuticals market in 2023.
Indian pharmaceutical industry
The Indian pharmaceutical industry is poised to take the world by
storm, with a projected CAGR of 13.01% during 2023-2028. A bright future beckons for
Indias pharmaceutical sector, driven by an unwavering commitment to quality
manufacturing, affordable medications, and innovative technologies.
According to the EY FICCI Report, the industry is expected to soar to a
value of $130 billion by the end of 2030, thanks in large part to a growing consensus on
the importance of providing new and innovative treatments to patients. Collaboration
between the government and industry has been instrumental in the industrys success,
and this trend has only grown stronger in light of the COVID-19 pandemic. As a result, the
government has increased its allocation to the health sector by H 2,954 crores, from
H 86,200.65 crores in FY23 to H 89,155 crores for FY24, signalling a
deep and abiding commitment to the industrys continued growth and success.
Indias reputation as a global leader in vaccine production and
the largest producer of generic medications, responsible for 20% of the total worldwide
supply by volume, is a testament to the industrys unparalleled prowess and promise.
As the government establishes an additional 157 medical colleges in the coming years, the
industry is set to soar to even greater heights, its fortunes and future intricately
linked to the noble pursuit of improving the health and well-being of all.
Growth drivers
The Indian governments steadfast commitment to transforming the
nation into the global "Pharmacy" of choice was made evident in its recent Union
budget. The governments decision to increase the capacity of the Indian Council of
Medical Research (ICMR) and open it up to public and private pharmaceutical companies for
extensive research and collaborations is a major step towards enhancing the
industrys research and development capabilities.
The governments recent budget also includes an increased
allocation of funds to the healthcare sector, highlighting its renewed focus on capacity
building and, in turn, leading to further scale-up in the pharmaceutical industry. This
investment will contribute significantly to the industrys growth by strengthening
its infrastructure, improving quality standards, and creating more employment
opportunities.
A vital step taken towards realising Indias ambition to become a
self-reliant nation in the pharmaceutical industry is the introduction of the
Production-Linked Incentive (PLI) Scheme. The Scheme aims to promote local manufacturing
of Active Pharmaceutical Ingredients (APIs), Key Starting Materials (KSMs), and Drug
Intermediaries in India. As the government expands the PLI scheme, more local
manufacturers will have access to the incentives and support they need to play a more
significant role in the API sector, bolstering Indias position as a leading global
manufacturer of generic drugs.
Strengthening the
Pharmaceuticals Industry (SPI) scheme is another significant
development in Indias pharmaceutical landscape. It focuses specifically on MSMEs and
pharma clusters in the country, providing the necessary support needed to enhance
productivity, capacity, and quality. With a view to positioning India as the global leader
in pharmaceutical manufacturing, this scheme is expected to give further impetus to the
industrys growth.
As growth in pharma sales in developed countries flattens,
pharmaceutical companies are increasingly looking to emerging markets for new sources of
growth and revenue. Indias expanding footprint and burgeoning pharmaceutical
industry make it an attractive destination for global pharmaceutical companies, prompting
a shift in focus towards global competencies with strategies tailored for local markets.
MD&A
Global API industry
The Global Active Pharmaceutical Ingredients (API) market is an
ever-expanding industry, characterised by a dynamic landscape of opportunities and
challenges. According to recent industry reports, the global API market size was valued at
a staggering USD 195.29 billion in 2022, and is likely to register a CAGR of 5.90% from
2023 to 2030. This growth can be attributed to the remarkable advancements in the
manufacturing of active pharmaceutical ingredients and the growing prevalence of chronic
diseases, such as cancer and cardiovascular diseases. Furthermore, favourable government
policies and geopolitical changes are boosting market growth, propelling the industry
forward towards greater heights. The rise in the ageing population is one of the major
drivers of the pharmaceutical API manufacturing market. With the ageing population comes
an increased demand for pharmaceutical drugs, leading to a surge in the demand for
specialty drugs that cure specific diseases.
The API market is also being transformed by the supply chain disruption
caused by the COVID-19 pandemic, with countries like India being preferred over China for
the export of API products. The pandemic also had a positive impact on the API industry,
as the pharmaceutical industry became the epicentre for treating COVID-19 symptoms,
including fever, cough, and cold.
To meet the high capital requirements for API production,
pharmaceutical companies are increasingly outsourcing the production of various APIs. This
is because the API production process requires extremely systematic protocols, which can
be both capital and labour-intensive. Strategic outsourcing by companies allows them to
focus on their core competencies and increases productivity. This outsourcing trend has
propelled the pharmaceutical API manufacturing market towards exponential growth, with the
market expected to reach $250.66 billion in 2026 at a CAGR of 6.4%. In conclusion, the
Global API industry is a fast-growing and ever-changing landscape characterised by
remarkable advancements, growing demand, and geopolitical changes.
Global Pharmaceutical API Manufacturing Market
Market forecast to grow at CAGR of 6.4%
Indian API industry
The Indian pharmaceutical industry has experienced a remarkable
transformation, shifting from a volume producer to a valued supplier. This growth can be
attributed to the crucial role of APIs in the sector, which contributes around 35% of the
market. The API is the biologically active component of a drug that causes an intended
medical effect, and India has become a leading global player in the manufacture of these
essential ingredients.
India currently accounts for 8% of the global API industry, making it
the third-largest producer worldwide. Over
500 different APIs are manufactured in India, with 57% of these
included on the prequalified list of the World Health Organization. The Indian API market
was valued at over H 1,000 billion, and is projected to grow at a CAGR of 7-8% over the
next three to four years. This will be driven by a rise in demand for contract
manufacturing, as global customers seek to diversify their supply chain dependence from
China to alternative destinations.
Furthermore, it is noteworthy to mention that the Indian
governments unyielding support and legislative measures, including the pioneering
production-linked incentive (PLI) program under its Atmanirbhar Bharat mission, will serve
as a crucial catalyst in driving the growth of the API industry. Such visionary steps are
geared towards reducing Indias dependence on Chinese imports, thereby making it an
attractive space for both investors and venture capitalists alike. Moreover, Indias
highly resilient domestic market, well-established chemical industry, skilled workforce,
and stringent quality and manufacturing standards, coupled with substantially lower
operational costs as compared to the West for setting up and running modern plants,
present a truly formidable advantage.
Global nutraceuticals industry
Nutraceuticals, or compounds that target the pathogenesis of metabolic
disorders and associated complications, are rapidly becoming an integral part of consumer
lifestyles. The growing demand for products that promote overall health is driving the
nutraceuticals market. In 2022, the global nutraceuticals market was valued at $291.33
billion, with North America accounting for the largest revenue share of over 35.50%. The
industry is expected to grow at a CAGR of 9.4% from 2023 to 2030, relying on key drivers
including preventive healthcare, lifestyle-related disorders, and a rising consumer focus
on health-promoting diets.
Furthermore, the growth can be attributed to technological
advancements, such as the adoption of AI, enabling personalised solutions based on
consumer dietary and health data.
However, government regulations and market suppression have prevented
this markets full potential.
Nonetheless, the trend towards food fortification with nutraceutical
products is expected to create significant growth opportunities in the future. The
nutraceuticals industry is poised for continued expansion, with a focus on improving
consumer health and quality of life.
Global nutraceutical market segment breakup
| Functional Foods Market value ($ In Bn, 2021) 157 |
E-commerce segment Market value ($ In Bn,
2021) 116.3 |
| Capsules and tablet segments Market value ($ In Bn, 2021)
127.2 |
Sports, energy and weight management segment
Market share (In %, 2021) 32.7% |
Indian nutraceuticals industry
The Indian nutraceuticals market has witnessed a significant
transformation in the past few years, owing the shift in human behaviour and outlook
towards health and well-being. As the demand for cleaner foods and a healthier lifestyle
continues to increase, consumers are seeking products that are backed by scientific
evidence and research, which adds value to their overall health and wellness. This
transformation has led to an impressive growth of the Indian nutraceuticals market, which
is expected to reach a global market share of 3.5% by 2023. According to estimates, the
Indian nutraceuticals market is poised to grow at a remarkable CAGR of 15% between 2023
and 2028. The rise in demand for immunity-boosting supplements, such as vitamin capsules,
chewable tablets, and gummies, is a testament to the open-minded buying behaviour of
consumers of healthcare products. Even after the pandemic severity has minimised,
nutraceuticals purchases continue to soar, indicating that the industry has firmly
established its presence in the market.
The Indian nutraceuticals market presents an attractive opportunity for
investors and venture capitalists, thanks to the countrys robust domestic market,
advanced chemical industry, skilled workforce, and stringent quality and manufacturing
standards. The Indian governments support and initiatives, such as the
production-linked incentive (PLI) scheme, will reduce Indias dependence on Chinese
imports and make the market even more lucrative. With the increasing consumer spending
power, the Indian nutraceuticals market is expected to experience even more substantial
growth in the coming years, making it a force to be reckoned with in the global industry.
Growth drivers
Personalization
Nutraceuticals are no longer viewed as a one-size-fits-all solution.
Thanks to advancements in digital technology, nutraceutical brands can now offer
high-quality and effective supplements tailored to individual needs. For instance, Indians
are often deficient in Vitamin D, despite ample sunlight. Nutraceuticals can be used to
address specific health issues and support overall physical and mental wellness, making
them an integral part of modern healthcare.
Clean Nutrition
Consumers today want clean and transparent alternatives to traditional
supplements. They demand brands to be clear about the ingredients used and the scientific
evidence behind them.
The industry is responding to this by investing heavily in research and
development, leading to cleaner, more effective products.
Innovation
Nutraceutical brands are leveraging technology and innovation to
improve the customer experience. Millennials and Gen Z consumers, in particular, need
supplements that can fit into their busy lifestyles.
The industry is responding to this by offering supplements in various
forms such as tablets, gummies, and chewable forms, that can be consumed on-the-go.
Additionally, nutraceutical brands are focused on creating an immersive experience that
educates consumers about what they are consuming.
Company overview
Natural Capsules Limited (NCL) stands as an illustrious hard capsules
shell manufacturer, who pioneered the manufacturing of vegetarian capsules in India and
holds the position of the second largest Indian manufacturer for gelatin capsules. In
1993, NCL was incorporated as a Public Limited Company in Bengaluru and expanded its
operations to Puducherry in 2003, further cementing its position as a trusted brand in the
industry. With the successful foray into API manufacturing under its subsidiary, Natural
Biogenex Private Limited, the Company now boasts two distinct business verticals -
Capsules and API manufacturing.
Outlook
In FY24, the Company anticipates a resurgence in demand and
realisations in the capsule vertical after the gradual conclusion of the destocking phase.
The forthcoming commercialisation of HPMC capsules, targeting the thriving nutraceutical
products market, is expected to drive growth in the capsule vertical, offering higher
realisations and margins. While the API vertical may not contribute significantly to the
bottom line in FY24, NCL remains confident that the robust growth in the capsules vertical
will offset any temporary setbacks from the
API vertical. The Company remains focused on scaling up operations and
implementing a strategic product-wise expansion plan to ensure seamless production and
capitalise on emerging opportunities in the API vertical.
Key financial ratios
(H In crores)
| Particulars |
FY22 |
FY23 |
Change |
| Interest coverage ratio |
12.46 |
10.28 |
(17.5%) |
| Inventory turnover ratio |
22.56 |
23.39 |
3.65% |
| Debtors turnover ratio |
5.1 |
4.4 |
(13.76%) |
| Current ratio |
1.63 |
1.52 |
(6.75%) |
| Debt equity ratio |
98% |
94.75% |
(3.32%) |
| Operating profit margin (%) |
18.79% |
20.33% |
8.20% |
| Net Profit Margin (%) |
10.30% |
10.70% |
3.88% |
Human resources
Natural Capsules Limited (NCL) believes that its people are the
lifeblood of the organisation. As a Company operating in an industry that values
efficiency and innovation, it recognizes the importance of having a skilled and motivated
workforce that is committed to driving the Companys growth. Its employees not only
contribute to the success of NCLs processes and management, but also drive
intellectual growth within the Company.
As the Company moves into a new fiscal year, it remains focused on
developing its human capital while attracting and retaining the best talent in the
industry. NCLs commitment to fostering a healthy and cordial work environment that
encourages personal growth and skill-building among its employees is unwavering. To this
end, the Company continues to conduct regular training workshops that enhance the
capabilities of the workforce. Furthermore, the Employee Stock Option scheme aims to
incentivize retention while enabling employees to share in the Companys financial
growth.
With a motivated and engaged workforce, the Company remains confident
in its ability to deliver value to all the stakeholders and capitalise on the many
opportunities that lie ahead. As of March 31, 2023, the Company is home to more than 250
employees.
Internal control systems and their adequacies
NCLs prudent and watchful management ensures that the
Companys Internal Control System is sufficient to meet
operational needs. The Companys management has the overarching responsibility to
safeguard NCLs assets and ensure the accuracy and reliability of its financial
records
To guarantee that NCL is always up to the task, it has enlisted the
assistance of a skilled Independent Chartered Accountant to perform an internal audit and
validate the recording and reporting of transactions.
The Internal Control System also guarantees that all transactions are
authorised, recorded, and reported properly, and that measures are taken to upgrade the
control system continually. NCL conducts regular asset protection exercises and takes
measures to prevent unauthorised use. Additionally, the Audit Committee performs a
comprehensive review of all financial statements and ensures the sufficiency of the
internal control systems. The Company has further implemented a comprehensive CCTV
Surveillance system that monitors the entire factory premises to protect against material
loss and safety breaches. These efforts are continually monitored and assessed by the
management, who implement improvements as necessary to ensure the effectiveness of the
Internal Control System.
Cautionary statement
Statements in the Management Discussion and Analysis describing the
objectives, projections, estimates and expectations of the Company, its direct and
indirect subsidiaries and its associates, may be ‘forward-looking statements
within the meaning of applicable laws and regulations. Actual results might differ
substantially or materially from those expressed or implied. Important factors that could
make a difference to the Companys operations include, among others, economic
conditions affecting demand/supply, price conditions in the domestic and overseas markets
in which the Company operates, changes in the Government regulations, tax laws and other
statutes and incidental factors.
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