NGL Fine Chem Ltd Management Discussions.


CY 2020 proved itself unusually exceptional in more ways than one. After a weakened global growth of 2.3% in 2019, a contraction of 3.5% was reported in 2020. (Source: Issues/2021/01/26/2021-world-economic-outlook-update). This decline became even more pronounced with the outbreak of the Covid-19 pandemic and the consequential suspension of economic activities worldwide. Joe Biden replacing Donald Trump in the US, Britain exiting the European Union, the continuing US-Iran tensions, volatile crude prices owing to discrepancies between OPEC and OPEC+ countries and climate disruptions were some of the marquee and defining events of the previous year. Strict and complete lockdowns, exponentially rising Covid-19 cases and a zero- to even negative-interest rate environment weakened world economies during the early months of FY 2020-21. However, staggered easing of restrictions, reduction in Covid-19 cases and various stimulus packages announced by different governments worldwide, started showing signs of a gradual and reasonable recovery in the world economies.


The world GDP growth, forecasted at 6% in 2021, is subsequently expected to moderate down to 4.4% in 2022 (Source: Tuesday%20it,an%20earlier%20estimate%20of%20 4.2%25). A consistent recovery, largely based on successful vaccination drives and government initiatives in major economies, forms the premise of this forecast. However, mutant variants of the Covid-19 virus, the current second wave and the highly possible subsequent wave(s) remain a great cause of concern.


The outbreak of Covid-19 pandemic severely weighed down the growth prospects of the Indian economy as well - reporting a contraction by 8.5% in FY 2020-21. The strict virus-containing Government restrictions impacted most sectors severely. All the essential services and related sectors were an exception here, while the rest witnessed a steep decline in business. The supply side saw factories shutting down with only ‘essential items being allowed to continue production. The demand side took a hit due to lower spending, which again was due to employee layoffs, high unemployment rate and the resultant lower income levels. The effect: a 23.9% contraction in GDP, reported in the Q1 Hof FY 2020-21 (Source: https://www.worldbank. org/en/country/india/overview).

An upsurge in demand for health, hygiene and safety products like immunity boosters, sanitisers and masks led to an inflation in the sector. The pharmaceuticals, medicinal chemicals and botanical products recorded inflation at 3.40% in August 2020, 2.70% in September 2020, and 3.31% in October 2020. (Source:

During FY 2020-21, the Indian Rupee appreciated by 3.14%, after touching a low of Rs 75.68 against the US$ -(Source: https://www. rupee-falls-nearly-3-ytd-in-2020-check-how-it-will-fare-against-us-dollar-in-2021/2160706/), averaging Rs 74.10 to the US$ in 2020 (Source: https://www.hindustantimes. com/business-news/fitch-solutions-revises-forecast-for-indian-rupee-to-average-at-rs-75-50-usd-for-2021/ story-u0nP8yvh83aeVb77OEz5kO.html#:~:text=Fitch%20 Solutions%20on%20Monday%20said,for%20a%20 stronger%202021%20forecast). The unemployment rate also declined from 23.5% in April 2020 to 7.2% as on 14th April, 2021 (Source: unemployment-rate-india/).

Other than the Covid-19 outbreak, India also witnessed a few significant events such as the Galwan Valley border tensions with China, a non-permanent seat at the UNSC, state elections in Bihar and West Bengal, and a sharp rally in the stock markets.


Government initiatives such as Aatmanirbhar Bharat, Production-Linked Incentive (PLI) schemes and the subsequent improvements in Ease of Doing Business rankings (63rd globally), are expected to act as tailwinds, driving Indias economic growth forward. According to the International Monetary Fund (IMF), the real GDP growth in India is projected at 12.5% in 2021 and 6.9% in 2022 (Source: https://timesofindia.indiatimes. com/business/india-business/imf-projects-indias-growth-rate-to-jump-to-impressive-12-5-in-2021/ articleshow/81933929.cms#:~:text=IMF%20projects%20 Indias%20economic%20growth%20rate%20at%20 12.5%25%20in%202021,-TIMESOFINDIA.COM%20/%20 Updated&text=Notably%20in%202020,%20economy%20 contracted,for%20the%20country%20in%202021). India would thus regain its tag as the worlds fastest growing economy in the next two years. However, the surge in Covid-19 cases in the Q1 of FY 2021-22, is likely to affect the public consumption of goods and services, acting as a growth dampener.


The global pharmaceutical market is estimated to be valued at US$1,228.45 billion in 2020. If geographically segmented, the North American market constituted 46%, while the Asia-Pacific region contributed to 26% of the total market. As a constructive consequence, the Covid-19 pandemic has instilled a habit of sanitisation and awareness towards health and immunity among people. This is expected to further boost growth alongside the rising healthcare facilities in underdeveloped countries and an increasing number of NGOs focusing on healthcare.

The pharma industry is known for using latest technologies. Currently, the industry is undergoing a major change with the increasing use of artificial intelligence and machine learning. These cutting-edge technologies are used in drug discovery and development, precision medicines, Contract Research and Manufacturing (CRAMs) and e-pharmacies. The industry is expected to reach a size of US$1,700.97 billion by 2025, at a Compounded Annual Growth Rate (CAGR) of 8% (Source: https://www.globenewswire. com/en/news-release/2021/03/31/2202135/28124/en/ Global-Pharmaceuticals-Market-Report-2021-Market-is-Expected-to-Grow-from-1228-45-Billion-in-2020-to-1250-24-Billion-in-2021-Long-term-Forecast-to-2025-2030.html). The US and the emerging markets are expected to be the major constituents of the global pharmaceutical industry America due to its size and the emerging markets because of their growth prospects.

The animal healthcare market comprises production animals (livestock, animals for meat) and companion animals (household pets). The contribution of the two segments in the overall market in 2020 was approximately 65% and 35%, respectively (Source: industry-analysis/animal-health-market).

The global animal healthcare industry was valued at US$50.89 billion in 2020. It is expected to record a healthy CAGR of 8.8% from 2021 to 2028 emerging as one of the fastest-growing industries worldwide. Region-wise, Asia Pacific is anticipated to be the fastest growing market over the same period. This extraordinary forward momentum is expected to be driven by a couple of factors. Firstly, the growing protein food demand followed by a surge in the occurrence of zoonotic and food-borne diseases worldwide, along with increasing pet ownership globally are the prime contributors here. The rise in zoonotic diseases is on account of deforestation. This in turn raises contact between humans and animals while increasing the population of virus-harbouring insects such as ticks. Numerous Government initiatives, promoting animal healthcare, together with the rising animal activism, hold the potential to curb this. (Source:

Within the animal healthcare industry, the market size of the global veterinary Active Pharmaceutical Ingredients (APIs) was valued at US$6.3 billion in 2020.

Under this segment further, there are two bifurcations production and companion animals. Production animals are the ones fed for their meat, i.e., livestock. This segment comprises roughly two-thirds of the global animal health market by animal type. Then there are companion animals who are kept as pets (typically dogs, cats, hamsters, birds, guinea pigs and fish). The segment of companion animals constitute approximately 33% of the global animal health market.

The market for animal health is projected to record a CAGR of 6.9% from 2021 to 2028. This estimated growth is attributed to increasing pet care expenditures and rising number of veterinary visits, alongside growing livestock population. These and many other factors, such as increase in R&D investments, high pet adoption rates, mandatory vaccinations, increased consumption of meat, and advent of feed additives with anti-microbial properties, are likely to act as the sectors growth enablers. (Source: https://www.


The Indian pharmaceutical industry has grown from US$4.2 billion in 2000 to US$41.7 billion in 2020. The industry registered a CAGR of 11% in the domestic market and 16% in exports from 2000 to 2020.

Indian pharma exports stood at US$20.14 billion in FY 2020-21 (up to January 2021). The country is among the worlds leading suppliers of pharmaceuticals, supplying 40% of the generics to the US and 25% of prescription drugs to the UK, while also catering over 60% of the global vaccine demand.

(Source: EY FICCI report titled ‘Indian Pharmaceutical Industry 2021: future is now published in February 2021) India is expected to become the ‘worlds pharma hub over the next decade strongly backed by its availability of labour, suitable manufacturing conditions, low-wage costs and abundance of raw materials. The industry is projected to register a 12% CAGR from 2020 to reach US$130 billion in 2030 (Source: EY FICCI report titled ‘Indian Pharmaceutical Industry 2021: future is now published in February 2021).


Increasing Government Spending

Indias gross research and development (R&D) expenditure, as a percentage of GDP, has remained stagnant at 0.7% since the year 2000. This figure is far lower as compared to countries such as Israel (4.6%), South Korea (4.5%), Japan

(3.2%), Germany (3%), China (2.1%), Brazil (1.3%) and Russia (slightly over 1%). The Economic Advisory Council to the Prime Minister (EAC-PM) expects this figure to reach 2% by 2022, thus giving a thrust to the sector (Source: EY FICCI report titled ‘Indian Pharmaceutical Industry 2021: future is now published in February 2021).

Increasing Focus on Animal Health

A lot of developments and awareness towards animal health and welfare is amplifying the focus towards the sector. Higher focus on animal health driving the increasing expenditure on pets, rising companion animal adoption, more veterinary visits, growing livestock population, increase in R&D investments, compulsory pet vaccinations, increased meat consumption, and advent of feed additives with anti-microbial properties, are amplifying the focus on animal health. This is giving a major boost to the animal API and intermediates market.


Rising Costs of New Products

Lately, new medicines are becoming expensive to produce. It is estimated that the cost of producing a new medicine is rising by approximately 10% each year. Hence, pharmaceutical companies are compelled to hike prices, which might lower the demand in terms of volume (Source:

Regulatory Dependence

India is inherently dependent on the United States Food and Drug Administration (USFDA)s regulatory approval for the launch of a new product. Thus, making it vulnerable to rejection or delay in products approval. Furthermore, on an average, regulatory approval in India takes approximately 20% to 40% more time as compared to the US, European Union countries, or Israel (Source: EY FICCI report titled ‘Indian Pharmaceutical Industry 2021: future is now published in February 2021). This affects the launch of new products and their formalities further.

Rapid Technological Obsolescence

Technological obsolescence, in the form of drug development mechanisms, automation in production, precision medicines, and drug testing procedures, can disrupt business models. This may potentially impact operations, lower workforce needs, and lead to higher cybersecurity risks.


Mr. Narayan Lawande incorporated NGL Fine-Chem Limited (‘NGL or ‘The Company) in the year 1981. The Company is a veterinary pharmaceutical raw material manufacturer and its products are mostly used in the animal health industry. The Company manufactures APIs and intermediates for application in veterinary and human health. It provides a range of products catering formulations for farm animals with Africa as its largest end-user market. The Company has a strong and growing international presence in Latin America, Asia and Europe, backed by its superior quality and value-added products.

The Company focuses on cost competitiveness while ensuring highest quality of products. Today, NGL is a reputable player with strong customer relationships. It has over 400 customers spread across more than 50 countries. The Companys strategic and long-term goal is to be a global player in animal health APIs. In line with this goal, NGL continues adding products and customers in different markets. Most of the Companys products cater the livestock segment which makes up roughly 65% of the total global market for animal APIs and intermediates.

COMPANY PERFORMANCE Product-Wise Performance

A large portion of the Companys revenue comes from the veterinary API segment. It manufactures over 20 APIs in this division. These ingredients are used in different therapeutic categories such as ecto paraciticides, anthelmintic, growth nutrients and endo paraciticides, among others. NGL also manufactures three APIs for human health used in antidiarrheal, angina and anti-malarial treatment. Veterinary APIs 78% Human APIs 8% Intermediates 6% Finished Dosages 8%

Financial Performance

The Companys total income has increased by 70.77%. EBITDA stood at 85.23, as against Rs 23.87 Crores in 2019-20, and PAT was recorded at Rs 55.47 in FY2021, as compared to Rs 10.60 Crores in FY 2020. R&D cost witnessed an increase to Rs 2.44 Crores, versus Rs 2.19 Crores in the previous financial year. EPS has increased to Rs 89.79, as compared to Rs 17.16 in 2019-20.

(Rs in Crores)
Particulars 2020-21 2019-20
Revenue 255.21 149.45
R&D Expense 2.44 2.19
Earnings Before Interest, Tax and Depreciation & Amortisation 85.23 23.87
Profit Before Tax 76.00 14.35
Profit for the Year 55.47 10.60
Total Assets 206.18 155.58
EPS (In Rs) 89.79 17.16
Name of Metric FY 2020-21 FY 2019-20 % Change increase (decrease) Explanation in case change is 25% or more, as compared to the previous year
Inventory turnover 3.06 3.02 1.41 Slight improvement due to better inventory management.
Current ratio 3.12 1.93 61.47 Retained earnings have been utilised for working capital purposes leading to improvement in ratios.
Debt equity ratio 0.11 0.28 (62.07) Higher retained earnings have improved net worth while borrowings have decreased.
Debtors turnover 8.41 5.27 59.56 Better collection monitoring and tighter credit limits implementation has resulted in better efficiency.
Operating profit margin 30.50% 11.11% 174.42 Lower raw material cost and reduction of expenses has lead to higher profitability.
Net profit margin 21.74% 7.09% 206.44 Lower raw material cost and reduction of expenses has lead to higher profitability.
Return on net worth 35.68% 10.47% 240.68 Lower raw material cost and reduction of expenses has lead to higher profitability.
Interest coverage ratio 42.30 7.37 473.65 The Company has consistently maintained a strong interest coverage, which is a result of prudent debt management.


NGLs manufacturing facilities are located at Maharashtras Navi Mumbai and Tarapur. The facilities have received the Good Manufacturing Practice (GMP) certification from the Maharashtra State Food and Drug Administration. The Companys facilities are equipped with cutting-edge technology, making it competent to deliver wide array of products.

The Company currently has the capacity to manufacture 10,000 m2 tonnes of APIs. It has 10,800 m2 square metres of factory land, 194 m3 cubic metres of stainless steel reactors, 12m3 cubic metres of gas-induction reactors and 102 m3 cubic metres of glass-lined reactors.

As on 31st March, 2021, the capacity utilisation levels remained at 85% to 90% on an average, for the entire year, with little scope for enhancement. The Company is on track to complete a capital expenditure of around Rs 20 Crores in the near term and it is expecting to incur a total capex of around Rs 80 Crores in the next three years.


Risk Impact Mitigation
Competition risk The Company has six to seven competitors and an increase in competition could negatively impact its market share, margin profile and return on capital employed. NGLs distinctly differentiated brand image and long- standing customer relationships helps the Company mitigate this risk. Furthermore, during the fiscal, the Company witnessed market share gains as a result of faster supply of products than competitors, to customers, for whom urgency was a top priority.
Environmental regulations and compliance risk NGLs subsidiary Macrotech Polychem Private Limited - had to temporarily shut operations at the Tarapur plant on 6th March, 2021, due to alleged violation of Water (Prevention and Control of Pollution) Act, 1974, and Air (Prevention and Control Pollution) Act, 1981. A similar closure was also initiated by Maharashtra Pollution Control Board for one of its units located at Tarapur on 9th February 2021. Maharashtra Pollution Control Board issued conditional restart directions of the plant on 8th March, 2021. During the fiscal, the Company received certification of being 14001 and 42001 compliant. NGL is also upgrading its facilities: one of the Companys plants is a zero-discharge facility wherein effluent is recovered, recycled and re-used. The Company is on track to implement this at its second plant as well. NGLs boilers run on environment-friendly fuels: two on agro-based and two on gas with no coal or oil used.
Foreign currency exchange rate risk About 75% of NGLs revenue comes from exports. The Company mitigates this risk by its foreign- exchange-hedge mechanism.
Customer concentration risk NGLs top 10 customers account for 37.8% of its total sales. The Company has a large customer base of over 400 and no single customer accounts for more than 6% of its sales.
Product quality risk Currently, 15% of the Companys total production is outsourced to contract manufacturers. A decline in product quality could hamper customer relationships, further impacting revenue. NGL has a stringent quality-control system in place and as a result, the Company has never had a single case of product defect in the past decade.
Raw material supply risk Approximately 15% of the Companys total raw material comes from suppliers in China. NGL is in the process of exploring other suppliers in India. The Company is aiming to gradually diversify its supplier base.
Product concentration risk The Companys Veterinary APIs are around 78% of its total revenue. NGL has more than 20 APIs in animal health segment and aims to add two to four new product offerings every year, based on the demand.


Over the years, by way of imparting training, rewarding superior performance, and building a creative workplace, the Company has built an incredibly well-motivated workforce. Despite the pandemic-induced fear in March-April 2020, 10% of the Companys workers were operating in its factories as on 1st April, 2020. By 1st May, 2020, this number shot up to 50%. This clearly demonstrates the motivation and loyalty of NGLs workforce. During the FY 2020-21, the Company did not lay off a single employee, instilling a sense of job security amongst its workers.

Over the past several years, NGL has been nurturing a work culture driven by performance, role clarity, teamwork and mutual respect. The Company has strategically invested in people and processes to propel this culture, making every employee feel empowered. As on 31st March, 2021, the Companys employee strength stood at 294.

Going forward, NGL would continue recognising its human resource as a key asset while ensure the highest level of safety, security and health for its employees.


The global outbreak of the Covid-19 pandemic globally and in India resulted in slowdown of economic activities. The Company evaluated the impact of this crisis on its business operations during the year ended 31st March,

2021. NGL re-opened its factories from 1st April, 2020, in line with the Government directive allowing essential services to re-start manufacturing. However, capacity was substantially constrained due to disruption in material and travel restrictions. The Company immediately transitioned to remote working, rented new office premises to reduce travel time, provided transport facilities for staff and workers to commute faster, while ensuring adherence to masking and other safety mandates. As a result, NGL became fully operational by the middle of May 2020.


The Companys internal control systems have been designed to monitor and control its day-to-day operations through regular tracking and reporting. The systems also enable NGL to effectively monitor compliance to various rules and regulations, and adherence to policy requirements.

NGL adheres to local statutory requirements for orderly and efficient conduct of business, safeguarding assets, detecting and preventing frauds and errors, adequacy and completeness of accounting records, and timely preparation of reliable financial information. The efficacy of the internal checks and control systems are further validated by the Companys internal auditors.


Estimate and expectations stated in this Management Discussion and Analysis may be ‘forward looking within the meaning of applicable securities, laws and regulations. Actual result could differ materially from those expressed or implied. Important factors that could make difference to the Companys operations include economic conditions in the Government regulations, tax laws, other statutes and other incidental factors.