Nectar Lifescience Ltd Management Discussions.

Economic Background

Indias real Gross Domestic Product (GDP) at current prices stood at Rs. 195.86 lakh crore (US$ 2.71 trillion) in Financial Year ("FY") 2020-2021, as per the Second Advance Estimates (SAE) for 2020-21. International Monetary Fund (IMF) in its annual World Economic Outlook (WEO) ahead of the Annual Spring Meeting with the World Bank, said the Indian economy is expected to grow by 6.9 per cent in 2022. Notably in 2020, Indias economy contracted by a record eight per cent, the IMF said as it projected a 7.5 per cent growth rate for the country in 2021.

China, on the other hand, which was the only major economy to have a positive growth rate of 2.3 per cent in 2020, is expected to grow by 8.6 per cent in 2021 and 5.6 per cent in 2022. In 2020, the global economy contracted by 3.3 percent. According to the report, after an estimated contraction of 3.3 per cent in 2020, the global economy is projected to grow at 6 per cent in 2021, moderating to 4.4 per cent in 2022. The contraction for 2020 is 1.1 percentage points smaller than projected in the October 2020 WEO, reflecting the higher-than-expected growth out-turns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working.

Rankings of India

India, which appears to have been pushed back to being the worlds sixth biggest economy in 2020, will again overtake UK to become the fifth largest economy in 2025 and race to the third spot by 2030. India had overtaken the UK in 2019 to become the fifth largest economy the world but has been relegated to sixth spot in 2020.

Growth will naturally be slow as India becomes more economically developed, with the annual GDP growth expected to sink to 5.8 per cent in 2035. This growth trajectory will see India become the worlds third largest economy by 2030, overtaking the UK in 2025, Germany in 2027 and Japan in 2030 [Source: IMF Reports, Ibef.org, Wikipedia.org]

Indian Pharmaceutical Industry

The Indian pharma industry has achieved significant growth in both domestic and global markets during the past five decades. From contributing just 5% of the medicine consumption in 1969 (95% share with the global pharma), the share of "Made in India" medicines in Indian pharma market is now a robust of 80% in 2020. The pharma sector has been contributing significantly to Indias economic growth as one of the top 10 sectors in reducing trade deficit and attracting the Foreign Direct Investment (FDI). India is the largest provider of generic drugs globally. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK.

According to the Economic Survey 2020-21, the domestic market is expected to grow three times in the next decade. Indias domestic pharmaceutical market is estimated at US$ 41 billion in 2021 and likely to reach US$ 65 billion by 2024 and further expand to reach US$ 120-130 billion by 2030. Indias drugs and pharmaceuticals exports stood at US$ 20.14 billion in FY21.

The drugs and pharmaceuticals sector attracted cumulative FDI inflow worth US$ 17.75 billion between April 2000 and December 2020 according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

In 2020 drug sales in the domestic market continue to be impacted, with the pandemic showing no signs of slowing down. Chronic therapies such as cardiac and anti-diabetics saw marginal growth in May, indicating the slowdown may be more deep-rooted.

The reason for this is people have stayed indoors due to the lockdown, which has reduced asthma episodes. Seasonal cough and cold infections have also been significantly less. Other therapies such as anti-infectives (-20.8 per cent), gastrointestinal (-12.8 per cent), vitamins (-9.1 per cent), and pain and analgesics (-17.2 per cent) also continued to decline.

Global Pharmaceutical Market

The global pharmaceuticals market was expected to grow from $1228.45 billion in 2020 to $1250.24 billion in 2021 at a compound annual growth rate (CAGR) of 1.80%. The economic upheaval caused by the shutdowns to prevent the spread of coronavirus is raging globally, and many industries, including the pharmaceutical sector is facing uncertainties. The pharma companies, however, have another significant role in the pandemic, and that around managing Pharma operations during the pandemic. The unprecedented demand and expectation from the pharma sector in terms of R&D, production, supply chain management, and cost optimization is presenting many issues across the industry. Top executives and decision-makers will need to manoeuvre their pharma companies in a calculated manner to rise to humanitys occasion and make their businesses steady again.

About Nectar Lifesciences Limited

Nectar Lifesciences Limited (‘NLL or ‘NECLIFE or ‘Company) is an integrated pharmaceutical organization incorporated in 1995 based in Chandigarh, Punjab, India. NLL has developed fully integrated sustainable production systems to manufacture high quality Cephalosporin intermediates, Active Pharmaceuticals ingredients ("APIs") and Finished Dosage Formulations ("FDF" or "Formulations") to meet the diverse requirements of its customer base in India and over 75 countries worldwide.

NLL is a knowledge driven organization which constitutes a vital part of fast growing Indian Pharmaceutical Industry. NLL has transformed itself from being a small Domestic API player to one of the most integrated player in the Global Cephalosporins Industry within Anti Infective Therapeutic segment. NLL currently has a strong hold of API & Formulations with 11 State of Art manufacturing facilities spread across the States of Punjab and Himachal Pradesh with compliance to global standards of cGMP, Environment Health Safety (EHS) as well as pool of thousands of highly skilled, knowledgeable, competent qualified work force at all levels.

APIs & Intermediates

NLL continues driven by cost leadership, flexibility to produce multiple products in the same manufacturing facilities and capabilities in various therapeutic domains. Our API business is supported by technologically advanced research and development infrastructure, which develops new products and plays a role in the delivery of products to the market. NLL has an advantage of capacity and is also one of the leading in global capacity for some of the Cephalosporin Molecules. NLL is one of the leading manufacturers of Cephalosporin range of products possessing core strength in Manufacturing (Both oral and Sterile APIs) with increasing the number of molecules in its bucket with a strong R&D and is also one of the few companies in India possessing both Lyophilisation and Crystallization facilities. NLL offers highest standards of cGMP to satisfy both EU and USFDA requirements. Production is carried out in discrete production units, each unit coupled to a dedicated fully isolated finishing suite. NLL strictly maintains Total Quality System (TQS) controls throughout the entire production cycle from raw materials, manufacturing through to packaging and dispatch.

With an expertise in R&D, Nectar is also working on new generation Cephalosporin molecules to be a globally dedicated Cephalosporin player. Our API facility have global regulatory accreditations like USFDA, EUGMP INFARMED, COFEPRIS, KFDA, PMDA, MCC, ANVISA Brazil and others.

All the API & Intermediate manufacturing sites are fully complied with International environmental regulations. NLL also continues to demonstrate its commitment to its customers through significant investment in additional production facilities thus enhancing the capability and quality of service available.

Currently NLL‘s API business explores one of the most stringent markets of the world like EU, Mexico, LATAM, SEA, CIS etc besides overall exports to over 75 countries of the world.

Formulations

We are leveraging our global formulation capacities, a mix of cost, competitive operations, best-in-class assets and a talented team. We have successfully and consistently launched a range of affordable products across markets. NLL boasts of some great facilities having latest technology & equipments from best in class vendors across the world. NLLs strong compliance and quality orientation leads to producing products of highest quality conforming to stringent regulatory guidelines of various authorities like USFDA, EDQM, MHRA, MCC etc. NLL participates only in Exports for single dosage forms whereas in India which is a predominantly Fixed Dosage Combinations Market has come under hammer of regulators & is sub-judice.

Our capacities can be easily geared up to cater the need of high quality finished dosage forms for developed countries. Currently NLL sells its formulations in High End to the ROW markets like South East Asia, Latin America, Commonwealth of Independent States (CIS), Africa and the business has also started with regulated regions like EU. The FDF facility in Baddi also has been recognized & approved by regulatory bodies like INFARMED Portugal for European Union, ANVISA Brazil, OGYI Hungary for European Union, Pharmacy & Poison Board Kenya, NMRC Namibia, NDA Uganda, TFDA and others. NLLs major breakthrough was its strategic step towards making an entry in Europe through its formulations. NLL has filed two of its major Cephalosporin Formulations in Europe.

MENTHOL Mint derivatives

In a highly unorganized and fragmented menthol industry, Nectar has created a niche with its pharma-centric approach and a highly organized setup.

Nectar has excellent state of the art facilities in North India. Our infrastructure enables us to produce high quality products and we are also moving towards an even more higher quality day by day by increasing our operation excellency, in strict adherence to global standards for our prized domestic and international customers.

Right from sourcing of the natural raw material to world-class production practices to specialized packaging, our products pass through stringent quality control checks, carried under GMP norms, supervised by experienced and skilled manpower.

With global sized processing capacities, NLL has emerged as a leader in the Menthol Arena. NLL is also a global leader in manufacturing Pharmaceutical Grade Menthol.

Certifications:

GMP (Issued by World Health Organization - COPP)

ISO 9001:2008 - Quality Management

ISO 22000:2005 - Food Safety Management

ISO 14001: 2004 - Environment Management Systems

ISO 50001: 2011 Energy Management System

OHSAS 18001: 2007 - Occupational Health and Safety

FSSAI, KOSHER & HALAL

Nectar was the first company to file a US Drug Master File (DMF) for Natural menthol

Approved by University of Georgia, Centre for Isotope studies -C14

EMPTY HARD GELATIN CAPSULES (‘EHGC)

Indian EHGC market is estimated at approx. 120 billion capsules in absolute production terms, which have doubled in over last 2-3 years. NLL has invested in a State-of-the-art Empty Hard Gelatin Capsules manufacturing facility. This Unit replicates the pharma value orientation into its processes and systems to manufacture globally benchmarked products finding US and EU acceptance as well. The unit is completely based on pharma concept & is the only unit to follow unique concept of SMSR (Single Machine Single Room). NLL currently has a production capacity of 4 billion capsule shells. NLL is amongst top 5 EHGC manufacturers in India catering to both domestic & export markets. Nectars two-piece double lock gelatin capsules are manufactured in compliance with cGMP requirements of US FDA and EDQM norms and ISO 9001-2008 guidelines. NLL currently offers capsules in five sizes (0, 0el, 1, 2, 3) with all colour and printing options. NLL specially caters to customized needs of BSE-Free shells without sulphites, sodium or ethylene oxide. Nectar has recently launched two new innovative products in EHGC menthol capsules (Nexxicap MintyTM) and pearl capsule (Nexxicap PearlTM).

Some of the prominent features of our capsules are:

DMF filed

All printing options (linear, circular, spiral, oriented, Non-oriented etc)

Different Sizes (0, 0el,1,2,3)

5-year shelf life

Ethylene oxide free

BSE & TSE Free

Halal certification

Manufactured with pharmaceutical Drug Master File & EDQM (The European Directorate for the Quality of Medicines & HealthCare) certified gelatin.

REGULATORY FILINGS

NLL has filed 44 Drug Master Files (DMFs) till date in highly regulated markets like US, EU, Japan, Korea, Canada and South Africa for its Cephalosporin APIs, intermediates, capsules shells and menthol. NLL has also filed a number of Formulations dossiers to some of the high-end markets and expects quick approvals for the same. NLL intends to file more ANDAs and EU dossiers for its cephalosporin range of products along with many more API DMFs. Currently NLL has filed 15 ANDAs in United States most of it are only pending on the grounds of Facility Inspection.

Covid -19 Pandemic Risk

It has been over a year since the first reported case of COVID-19, and the world has undergone an extraordinary amount of economic turmoil in that short space of time, as nations across the globe fight the outbreak. The pandemic put pharmaceutical research and development strategies to the test and challenge the manufacturing planning and supply chain management. Having experienced the vulnerability of the global pharmaceutical supply chain, many companies have worked to redesign supply chains with multiple suppliers, and are finally contemplating a restart. COVID-19 pandemic in general across industries has caused disruptions in the business in terms of shortage of manpower, delayed export shipments, increased air freight, rise in raw material costs, delay in sales realisations etc. Some of these reasons are affecting industry continuously. Still, these challenges can be overcome and, braving all these hurdles NLL is trying to march ahead and is hopeful to increase its capacity utilization.

Operational Impact of Covid 19 on NLL

Closure of certain processing activities due to lockdown.

Migration of labour to their hometowns further deteriorated the processing of the major segmental pharmaceutical activities.

Cancellation of bulk orders by customers.

Huge discounts offered/ demanded by customers for the goods in transit.

Logistic cost escalated for raw materials and finished goods.

There has been strict state border control by Govt. of Himachal Pradesh and Punjab where all units of the company are located, leading to non-availability of migrant labour.

Further, even after restarting, there have been disrupting in the operations due to detection of COVID positive cases.

There has been delay in realizations from debtors due to lockdowns, both domestic and overseas.

The material remained struck up at ports therefore working capital got locked therein.

The lockdown / curfew caused disruptions to supply chain in its initial stage. Even though, the same has been improved with time, it will take some time to get back to normal due to limited logistics operations both by Air & Sea. The clearance of material at ports is also getting delayed due to limited staff.

Exports demand remains very robust, but the only deterrent has been limited transportation access to various destinations which are slowing down the exports. There has also been a surge in the freight charges by approx.4-5 times. The company has managed to continue its operations in a staggered manner as and when restrictions were eased by Government(s) particularly for Pharmaceuticals as "Essential Industry". The company has been able to start its operations of intermediates and APIs to meet the increased demand after lifting of lockdown.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The highlights of financial performance were as under:

FY21 FY20
EBITDA Margin (%) 7.33% 9.41%
Profit (Loss) BeforeTax Margin (%) (5.49)% 1.51%
Profit (Loss) After Tax Margin (%) (4.74)% 1.27%

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore, including:

Key financial ratios FY21 FY20 Change % Detailed Explanation in case change is more than 25%:
(i) Debtors Turnover 4.7045 6.6502 (-)29.26 (Credit Sales/Average Accounts Receivable.) There were delay in sale realisations from debtors due to Covid-19 Pandemic
(ii) Inventory Turnover 1.8398 2.4231 (-)24.07 (Cost of Goods Sold / Average Inventory) Not Applicable (N.A.)
(iii) Interest Coverage Ratio 0.2444 1.2841 (-)80.97 (EBIT/Interest) Sales and profits were adversely affected due to Covid-19 Pandemic with Interest Cost remaining constant and this led to poor interest coverage ratio.
(iv) Current Ratio 1.0423 1.2931 (-)19.40 (Current Assets/Current Liabilities) N.A.
(v) Debt Equity Ratio 0.1209 0.1071 12.91 (Long Term Debt/Equity) N.A.
(vi) Operating Profit Margin (%) 3.17% 6.65% (-)52.34 (Operating Margin / Net Sale) Sales and profits were adversely affected due to Covid-19 Pandemic
(vii) Net Profit (Loss) Margin (%) (4.74)% 1.27% (-)472.90 (PAT / Net Sale) Sales and profits were adversely affected due to Covid-19 Pandemic

Return on Net worth [Profit (Loss) After Tax/ Net Worth]

FY21 FY20 Detailed Explanation
(6.90)% 2.65% The reduction in net profit margin is due adverse effect of Covid19 pandemic.

Financial Impact of Covid-19

The companys revenue during Financial Year (‘FY) 2020-21 stood at INR 17623/- Million against 26393/- Million in the previous year recording a decline of 33%. This decline is on account of adverse Conditions and impact of Covid19 owing to lower demand of antibiotics the segment manufactured by the company. Since there was a worldwide lockdown and subsequently people started taking lot of precautions and masks were made mandatory the infection rate came down. This probably resulted in lower infection or less severe infections. The Company, based on the report of the technical expert, has determined its impact on valuation of stocks on account of reprocessing cost and has disclosed separately as Exceptional Item of Rs. 2,53.15 Million (Net of taxes of Rs. 1,35.98 Million).

The company reported loss of INR 846.50 Million in the FY21 compared to net profit of INR 357.43 Million in FY20 mainly on account of the lower sales, shortage of manpower, delayed export shipments etc. Finance cost is also decreased by 11% to INR 1120 Million.

Longer Operating Cycle

Due to the longer operating cycle caused by Covid-19 pandemic, the company availed moratorium for its debt obligations due from March-2020 to August-2020. Further, it has also availed COVID

loans amounting to INR 461 Million under the Emergency Credit Line Guarantee Scheme (ECLGS) from the consortium of banks to manage its working capital needs

Restructuring

Due to Covid-19 pandemic the company is facing mismatch in its fund flow however with the support to the bank it is managing the cash flows but with difficulty. To find a permanent solution to the problem it invoked Resolution Plan on December 24, 2020 and Inter Creditor Agreement was executed on January 14, 2021 under Covid 19 framework as per RBI guidelines which were done successfully and same has been implemented from June 21, 2021.

Benefits under Restructuring

Deferment of term loan repayment for a period not more than 2 years.

Conversion of Non Fund based working capital limits of INR 1600 Million into WCTL/WCDL (to be repaid over a period of 5 years from the date of implementation) to maintain the liquidity and to meet the cash deficit by reducing caring rate of interest of 9.35%.

Conversion of fund based working capital of EXIM Bank to the extent of INR 900 Million into Corporate Loan at a Return of Interest of 9.35%.

Reduction in fund based working capital limit by INR 811.8 million by way of sale of non-core assets till March 2022.

Reduction in term loan from Exim Bank and Shinhan Bank by INR 70.9 Million and INR 10.3 Million by way of sale of non-core assets till March 2022.

There is no change in the COVID loan and Funded Interest Term Loan ("FITL") repayment schedule and it shall be paid as per the existing terms

OPPORTUNITIES AND THREATS

1. Anti-infective/Microbial and Antibiotics are the largest therapy areas amongst all the therapy areas globally. Currently valued at $139.3 billion in 2020. The market is expected to grow at a CAGR of 6% reach $159.6 billion in 2023.

2. NLLs addressable market is Non Pen-G valued at US$ 13 Bio in late Gen 2, Gen 3, Gen 4 & Gen 5 molecules.

3. For NLL, a threat has become an opportunity in the sense that whole world is worried about Anti-Microbial Resistance (AMR) but till date not a single instance of AMR exhibited in any molecule in Cephalosporin range that NLL manufactures in the market.

4. Therefore, the real threat of AMR pertains to other classes of Infection which will continue to shrink and is an opportunity for NLL to rephrase its molecule. As anti-invectives are here to stay for Alleviation from infections.

5. The real threat is general perception of people, Media and Doctor Community which needs to be educated about the phenomenon of judicious use of Antibiotics particularly cephalosporins rather than indiscriminate the growing economy, therefore NLL is party to the alleviation campaign to ensure its cephalosporins continue to be used in a judicious manner.

OUTLOOK

NLL believes a diversified product basket helps to grow the business consistently and continuously. NLL follows a strategy of filing for select, differentiated products and as the approvals are received, commercialisation leads to market expansion.

The rapid spread of the coronavirus across the globe halted air travel, crumbling healthcare systems, countries going under lockdowns, thousands losing their jobs, and a looming prospect of the economic crisis are all the events that we as a world have seen in 2020. Industries across the board face the brunt of disrupted supply chains, skeletal workforce, and dwindling investments. However, one industry to which everybody is looking with bated breaths is the pharmaceutical industry- for it can provide an answer to this pandemic.

FY 2020-21 has been beset with the most challenging pandemic Covid19 which has devastated the whole world Socially, Economically & Geopolitically. According to total sales audit data from worlds largest pharmaceutical market research firm IMS Health, the Indian Pharma Market (IPM) 59 per cent YoY in April, 2021 vs 16 per cent YoY in March, 2021 due to the low base effect in April, 2020 and sharp surge in Covid-19-related sales.

The Anti-Infective Drugs Industry sets out tendencies that affect various subsidiary industries. Therefore, the Global market has ruled for being one of the leading revenue generators over the past several decades. This industry has challenged every economic disruption and withstands the test of time. Though this could benefit to motivate new market players in the Global industry, the preference for product development and novel procedures could assist new participants in obtaining a stronghold. The sales for Menthol has come down significantly in last few which as informed is primarily due to lower margins resulting from higher cost of production. The company manufactures Menthol using "Mentha Arvensis" raw material which is a natural product and is heavily priced as compared to its synthetic counterpart Di-pentene. The company proposes to use a hybrid approach in which it will use Di-pentene to manufacture Menthol which will be an improvement over both the approaches as discussed above. We could not comment on the marketability of the product manufactured through this approach and its overall feasibility since its market testing is yet to happen but the chemical properties shall be the same as discussed with technical team.

INTERNAL CONTROL SYSTEM & ADEQUACY

Internal control review assumes greater importance in the light of current economic downturn. Monitoring and assessment of internal controls across various functions is performed through continuous evaluations to ensure whether the implemented internal control system is effective as intended by the Board of Directors. The assessment facilitates identification of internal control deficiencies for further corrective actions.

The Company has a comprehensive system of Internal Controls to safeguard its assets against loss from unauthorized use and ensure reliability of financial reporting. NLL maintains a system of internal controls designed for effectiveness and regulations. All operations are governed through automated internal business controls, centralized global process framework and integrated key support functions. Quarterly tracking of annual quality objectives is done using QMS (quality management software), and any concerns are immediately flagged for effective addressing.

The system of internal controls monitors and ensures process for:

Effectiveness and efficiency of operations;

Reliability of financial reporting;

Compliance with applicable laws and regulations.

All transactions are recorded and reported in accordance with the Indian Accounting Standards. The internal auditors submit reports and updates. The Audit Committee of the Board review reports submitted by the internal auditors and monitor follow-up and corrective action, whenever required.

DEVELOPMENTS IN HUMAN RESOURCE

Human Resource Development ("HRD") has multiple dimensions, covering educational attainment, workforce skills, population health and the set of employment policies that provide businesses with workers with appropriate skills and the ability to adapt quickly to new challenges. NLL is a professionally managed company with highly competent and committed industry professionals forming a tight-knit team of dedicated colleagues. NLL commits substantial resources and strategies to train, enrich, retain and acquire its talent. As part of its investment in learning and development, the Company has re-crafted its human resource philosophy. In brief, they are listed below:

Attract, build and retain right talent at all the levels.

Create and nurture a performance culture through continuous capability building and motivation.

Performance measurement by leveraging use of IT.

Foster leadership at all levels through trust, empowerment and openness.

Strengthen collaborative approach for business excellence

Promote a vibrant work culture based on innovation and to incentivize people based on productivity/outstanding performance.

NLL has aligned its human resources learning and development to the needs of a growing and fast track organization. The people have to now perform with a certain sense of urgency, do more with less, be assertive yet be compliant and feel the heat of increase in their span of control. This presupposes skilling the existing manpower to perform at their optimum best. The shop floor resources are hence encouraged to stay focused on key development areas as they are the doers, and hence are required to maintain the necessary cGMP compliance levels. Shop floor executives are continuously trained and groomed in the area of compliance, supported adequately to raise their competence, confidence and anytime readiness.

The total numbers of employees are provided in Annexures to Board of Directors Report

Safety Standards

Environment Health and safety is of Paramount importance. Our fundamental belief is that the employees of NLL shall be provided a safe and healthy workplace. To that end, we follow global safety guidelines ces. As peroffi acrossallour safety rules manufacturingunitsand and policies, it is a mandatory requirement that all new projects get EHS clearance at the planning stage. Moreover, a review of these constructed assets is done to certify that laid standards have been adhered with.

Whistle Blower Policy

The company has made the Whistle Blower Policy for the employees of the company by which employees can report to the management, the instances of unethical behaviour, actual or suspected, fraud or violation of the companys code of conduct or ethics policy. As per policy: a) No unfair treatment will be meted out to a Whistle Blower by virtue of his/her having reported a Protected Disclosure under this Policy. b) The Company, as a policy, condemns any kind of discrimination, harassment, victimization or any other unfair employment practice being adopted against Whistle Blowers. c) Complete protection will, therefore, be given to Whistle Blowers against any unfair practice like retaliation, threat or intimidation of termination/suspension of service, disciplinary action, transfer, demotion, refusal of promotion, or the like including any direct or indirect use of authority to obstruct the Whistle Blowers right to continue to perform his duties/functions including making further Protected Disclosure. alternate

BUSINESS RISKS AT NECTAR LIFESCIENCES LIMITED: Risk Mitigation Methodology

We at NLL have a comprehensive audit plan which is accompanied with a robust risk management exercise which helps us to identify risks at an early stage and take appropriate steps as needed to mitigate the same. For this each Strategic Business Unit (SBU) head is in regular contact with the top management and they keep informing them of the risks they can face in future and how to rescue themselves from those. Some of the key existing and emerging risks affecting NLLs business are listed below

RISKS AND CONCERNS:

Competition Risks:

In an increasingly global market, companies face rising levels of competition. Being a global pharmaceutical player, selling API and generic formulations across the globe, competition and price pressures are common risk in all markets. NLL has a strong mitigation mechanism for this risk with the strategy to launch differentiated high value products meant for specialty segments. Further, we keep improving operational efficiencies to rationalize costs, introduction of new products by competitors might impair the Companys competitive advantage and could lead to loss of market share. The Company had a Robust R&D department which was regularly involved in developing cost reduction processes of our current molecules and also developing of new molecules to have a competitive edge over other competitors.

Regulatory Risks:

Pharmaceutical industry is a highly regulated segment with many local and overseas agencies monitoring it. The regulatory framework covers entire spectrum of activities like, development and approval of product, approval of manufacturing facilities, etc. Hence, the regulatory risk is one of the significant risks identified by the management. Company implemented detailed Standard Operating Procedure (SOP) for every important activity, has a strong Quality Assurance (QA) function, robust IT framework for compliance, monitoring and documentation, etc. for mitigating the regulatory risks.

Global Economic Volatility Risks:

Economic & Geopolitical events can manifest themselves in many ways. Nectars operations are extended to across the world having different political and economic environments. Any adverse change like political instability leading to policy uncertainty, tariff, trade wars, economic sanctions, leading to weakening of Global economy may impact companys business. Company continuously evaluates political and economic scenario across the globe and restricts overall exposure to identified countries, in terms of sales and invested capital.

Patent Protection Risks:

Every company have their own patents maybe related to products or processes and its protection is one of the most importance for them. NLL had a dedicated team of scientists whose primary task was to ensure that the products were manufactured using only non-infringing processes and related compliances by reviewing and monitoring IPR issues continuously. Also, the IPR team evaluated and provided stage wise IP clearances during product/ process developmental activities and also provided frequent updates and alerts on relevant IP (patent, trademark etc.) to R&D scientists for the products and suggests remedial measures to deal with IP related issues.

Raw Material Import Risks:

A basic requirement for sustainable growth and the successful production of high quality API and formulation is the secure supply of good quality raw materials, free from disruptions, disturbances and bottlenecks leading to high commodity pricing and market volatility. Companies in the country currently rely on Chinese suppliers for 70% of their ingredients. Similarly, We at NLL are largely dependent on China for the import of our raw materials, but with time we are reducing our dependency on China by finding alternate sources of the raw materials or by finding raw materials altogether.

People Risks:

NLLs success depends on our ability to retain and attract key qualified personnel, and if we are not able to retain them or recruit additional qualified personnel, we may be unable to successfully develop our business. Human resource strategy like recruitment, learning & development, succession planning, Motivation, Incentivizing and retention of competent personnel also helps a lot.

Financial Risks:

Tax uncertainty and debtor default could have adverse financial impact. Credit risk is the risk that a counter party does not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Failure to maintain appropriate credit ratings could affect the Companys cost of borrowings thereby having adverse impact on profitability. While the Companys exports were significantly high, financial obligations towards import payments were also high and giving natural hedge against foreign exposure. The increasing exports helped us in increasing our revenue from other currencies.

The Companys Finance team continued and would continue to ensure reduction in borrowing costs with negotiations with Banks. At the same time, the Company was having sizable imports/ working capital in foreign currency. The Company was conscious of the impact that currency fluctuations could have on earnings. The forex position of company was reviewed on a monthly-basis. The company had a strong export base to provide the required natural hedge for the imports that it makes.

Commodity Risks:

Dealing in commodities and the attendant volatility of prices exposes to lots of risks. This is why it is imperative to execute risk management strategies to mitigate and manage the risks associated with it. NLL procure a lot of Materials whose price may fluctuate in short or longer period of times. NLL try to combat the same by mostly buying the various materials only against the orders with also a background of a strong export base which helps in providing a natural hedge for the procurement.

For and on behalf of the Board of Directors
Of Nectar Lifesciences Limited
Place: Chandigarh
Date: 23-07-2021
(Sanjiv Goyal)
Chairman and Managing Director