Management Discussion and Analysis
For the financial year under review, the business operations of the Company comprise Pharmaceuticals.
a. Economy, Industry and Development
The global medicine market is expected to grow at 3 - 6 per cent CAGR through 2026, touching close to USD 1.8 trillion in total market size by 2026.i Several countries are presently looking at healthcare reforms. Drug manufacturers face stricter access and pricing environments as we go into 2024. Governments across various jurisdictions including the US, EU, Germany, Japan, China, etc. are introducing reforms aimed at controlling healthcare spending/drug costs. Such initiatives are likely to place significant pressure on the industrys revenue model.
The Indian Pharmaceutical Industry is currently valued at USD 50 billion and is expected to reach USD 65 billion by 2024, and thereafter USD 120 - 130 billion by 2030." Indian pharma exports witnessed a growth of 103% between 2013 and 2022.iii During FY18 to FY23, the Indian Pharmaceutical Industry logged a compound annual growth rate of 6 - 8 per cent. The domestic formulations market is projected to grow at an 8-10 per cent CAGR (reaching USD 20-22 billion in FY24), slightly below pre-pandemic growth rates, with export growth forecasted at 10 per cent (reaching USD 22-24 billion) compared to the historical long-term 15 per cent CAGR pre-COVID.iv
Concerns about regulatory compliance, increased competition, and pricing pressures in the US market will likely pose challenges to pharma export growth; nevertheless, Indian manufacturers are expected to focus on diverse product offerings including complex generics, biosimilars, and new branded products. Research and development will prioritize innovations in delivery systems for generics, with limited emphasis on new chemical entity (NCE) introductions/ Encouraged by the Government, the industry is looking at moving from volume to value-led growth. The shift aims to position India as a hub for drug discovery, development, and innovation. A collaborative mindset is emerging, with regulatory support, digital adoption, sustainability, and academia-industry collaborations driving the transformation. Indian pharma companies are expanding their global footprint by exporting to over 200 countries. Additionally, Efforts to enhance the quality standards within the domestic pharmaceutical industry have been underway through regulatory improvements.
The Government is expected to remain committed to universal healthcare and ensuring access and affordability. The AB-PMJAY scheme has received an increased allocation in the Interim Budget and may be extended to other vulnerable sections of the population, beyond its current scope. Regarding upcoming significant reforms, the legal framework governing the pharmaceutical sector, namely the pre-independence Drugs and Cosmetics Act, 1940 is expected to undergo a long-overdue update through the Drugs, Medical Devices and Cosmetics Bill, 2023 (‘Bill). The pricing framework is also expected to undergo a significant revamp following the constitution of the Committee for Reforms in the Pricing Framework for Drugs and Medical Devices by the Department of Pharmaceuticals.vi The new Uniform Code of Pharmaceutical Marketing Practices, 2024 (‘Code) shows a shift away from the Governments earlier light touch regulatory approach wherein the Government will be able to take cognizance of any violations taking place under other laws and regulations by pharmaceutical companies as part of their marketing practices.
References:
" https://www. investindia.gov. in/sect or/pharmaceuti cals#: ~:text=The%20 pharmaceuti cal %20 in dust ry%20 in%20India,served%20by%20Indian%20pharma%20exports.
111
https://pib.gov.in/PressReleasePage.aspx?PRID=1821747lv
https://www.pharmaindustrial-india.com/articles-interviews-online-watch/pharma-trends-in-2024-key-trends- and-future-projections#:~:text=An%200verview%20of%20the%20Indian%20Pharma%20Industry%20in%20 2023&text=The%20domestic%20formulations%20market%20is,in%20the%20pre%2Dpandemic%20era.v
ibidvi
https://pharmaceuticals.gov.in/sites/default/files/Reforms%20in%20the%20Pricing%20Framework_0.pdfb. Performance
Revenue from operations for the financial year ended March 31, 2024 was Rs.3,350.7 million illustrating a decrease of 11.5 per cent over the previous year. The Profit before tax for the year stood at Rs.1,228.4 million indicating increase of 6.5 per cent over the previous year. Profit before Tax for year 2022-23 was Rs.1,153.8 million.
The Ministry of Health and Family Welfare, Government of India, released the revised National List of Essential Medicines (NLEM), 2022. The revised list of NLEM impacted 9 (Nine) brands marketed by the Company. These brands are majorly in the areas of Oncology and Neurology.
Organ transplant procedures are projected to grow at 11 per cent in year 2024 primarily contributed by increased medical tourism supported by budget-friendly packages, advancement in surgical techniques, and government initiatives like the "Angdaan Mahotsav" awareness campaign1.
The incorporation of kidney, heart, lung, and liver transplants under PM-JAY Ayushman Bharat and Rashtriya Arogya Nidhi with financial support for BPL (Below Poverty Line) patients demonstrates a commitment to accessibility of Organ transplants in India.
Novartis continues to engage Physicians for high brand recall and for dissemination of key scientific messages. This is done through differentiated campaigns channelized through RTEs (Rep Triggered Emails) and CMEs (Continuing Medical Education). We continue to create high differentiation for Novartis brands in the Transplant maintenance portfolio. Physicians have adapted well to digital engagements, and we continue to implement them.
During the Financial Year 2023-24, the Transplant Maintenance portfolio grew by 11 per cent, which helped the organization to offset the impact on the sales due to shortage of Simulect. This growth was achieved despite a highly cluttered genericized market, by bringing in sharp focus on individual brands in Transplant Maintenance portfolio with high-pitch share of voice campaigns coupled with the innovative TRIO campaign aimed at driving a portfolio-based approach.
It has been 2 years of the exclusive sales and distribution arrangement entered into with Dr. Reddys Laboratories (Dr. Reddys) for a number of our Established Medicines which include the Voveran range, the Calcium range and Methergine. The arrangement aimed to broaden access of these medicines to larger geographies to benefit many more patients, more efficiently through an expanded field force.
Pain portfolio with its flagship brand Voveran range grew by 6 per cent in MAT Mar24 vs MAT Mar23. The team worked towards leveraging the efficacy perception of Voveran among HCPs and focus on urban and rural markets with a high in-clinic share of voice drive with the ‘Zindagi se milao kadam campaign. Voveran orals range has overall grown by 28 per cent for YTD February 2024 vs. YTD Feb 20233 with a 10 per cent increased prescription response in the November to February 2024 vs. November to February 2023 period4.
There is an increase in the share of voice and Voveran gaining prescription share among doctor specialties across India. The team continued exhibiting success with ‘The Cool Movement demonstration campaign to create a strong differentiation for Voveran Emulgel in a cluttered counter-irritant market. This has resulted in Voveran gels range overall growth by 18 per cent for YTD February 2024 vs YTD February 20233.‘Awareness for life initiative focused on improving bone & joint health conditions reached to people working in more than 100 corporates across India5.
References:
1
SAI market research on Transplant Procedure Market Overview - March 20242
IQVIA MAT Mar 20243
IQVIA MAT February 20244
SMSRC November-February 2024 report5
Dr Reddys reported informationThe Indian population currently has a very high burden of vascular risk factors, such as diabetes, hypertension, and obesity, which can adversely impact the onset and progression of dementia6. An estimated 8.8 million Indians older than 60 years have dementia7. Offering great convenience and safety, our Neurosciences innovative medicine for Alzheimers disease dementia, Exelon Patch has seen greater patient acceptance and usability which is reflecting in the growth numbers6.
The following brands hold key positions in major therapeutic areas such as:
| Therapeutic Area | Therapeutic Area Product |
| Bone and Pain | Voveran? |
| Transplantation Immunology | Simulect?, Certican?, Sandimmun?, Neoral?, Myfortic? |
| Neurosciences | Tegrital?, Exelon? |
References:
6
Vijayalakshmi et al. Changing demography and the challenge of dementia in India. Nature Reviews Neurology 17, 747-758 20217
Lee J, et al. Prevalence of dementia in India: National and state estimates from a nationwide study. Alzheimers Dement. 2023 Jul;19(7):2898-2912. doi: 10.1002/alz.12928. Epub 2023 Jan 13. PMID: 36637034; PMCID: PMC10338640.Key Financial Indicators
| Particulars | 2023-24 | 2022-23 |
| Operating profit margin (%) | 18.7 | 15.6 |
| Net profit margin (%) | 25.4 | 27.3 |
| Debtors turnover ratio | 8.6 | 9.4 |
| Current ratio | 4.4 | 4.2 |
| Return on Equity (%) | 11.2 | 14.1 |
| Inventory turnover ratio | 6.7 | 6.6 |
| Debt service coverage ratio | 24.2 | 19.4 |
| Debt equity ratio | 0.01 | 0.03 |
| Return on capital employed (%) | 9.2 | 7.9 |
| Return on Investment | 6.4 | 5.2 |
Reasons for change compared to the previous financial year in key financial ratios are as follows:
Operating profit margin
Operating profit margin is a profitability or performance ratio used to calculate the percentage of profit of a company produced from its operations. It is calculated by dividing the operating earnings before interest and tax by turnover. Margins have improved because of operational efficiencies.
Net profit margin
The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing profit for the year by turnover. Net profit margin in the financial year 2023-24 has decreased due to higher tax expenses compared to previous financial year 2022-23. Current tax expense for the year ended March 31, 2024 and March 31, 2023 includes tax adjustments for earlier years of Rs.61.6 million and ( 194.0 million) respectively.
Debtors turnover ratio
It is calculated by dividing turnover by average trade receivables, to quantify a companys effectiveness in collecting its receivables. No major movement compared to previous year.
Current ratio
The current ratio is a liquidity ratio that measures a companys ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities. No major movement compared to previous year.
Return on Equity
Return on equity is a measure of profitability of a company expressed in percentage. It is calculated by dividing profit for the year by average shareholders equity. Return on equity in the financial year 2023-24 has decreased due to higher tax expenses compared to previous financial year 2022-23.
Inventory turnover ratio
Inventory turnover is the number of times a company sells and replaces its inventory during a period. It is calculated by dividing turnover by average inventory. No major movement compared to previous year.
Debt service coverage ratio
The debt service coverage ratio measures how many times a company can cover its current interest payment with its available earnings. It is calculated by dividing earning available for debt service by lease payments. The ratio has been impacted positively due to significant reduction in lease liabilities on account of remeasurement.
Debt equity ratio
The ratio is used to evaluate a companys financial leverage. It is a measure of the degree to which a company is financing its operations through debt versus wholly owned funds. It is calculated by dividing lease liabilities by shareholders equity. The ratio has been improved due to significant reduction in lease liabilities on account of remeasurement.
Return on Capital employed
Return on equity is a measure of profitability of a company expressed in percentage. It is calculated by dividing profit before interest and tax for the year by capital employed. Return on capital employed has improved due to operational efficiencies.
Return on Investment
Return on investment is defined as return earned on the investment done. It is calculated by dividing weighted average interest income on bank deposit by weighted average bank deposits. Return on investment has improved due to operational efficiencies.
c. Risks, Threats, and Concerns
Supply continuity, quality of drugs, increasing cost pressure, inflation, high price elasticity, control of prices of certain drugs under the Drug Price Control Order (‘DPCO), including regulations to cap trade margins on non-scheduled products, continue to affect the profitability of the industry. The central government has been inclined to introduce Trade Margin Rationalisation (TMR) in furtherance of its effort to bring transparency and consistency to the pricing structure and to ultimately make medicine more affordable. The tilt towards domestic industry, in line with Atmanirbhar Bharat and ‘Make in India, will likely affect policies and incentives and may adversely impact competition.
d. Outlook
Medicine spending in India is projected to grow 9 - 12 percent over the next five years, leading India to become one of the top 10 countries in terms of medicine spending™.
The Budget allocation for the Department of Pharmaceuticals (DoP) is estimated to go up by 29.4 per cent to Rs.4,089.95 crore during the FY 2024-25, as compared to the Rs.3,160.06 crore outlay estimated for the FY 2023-24, backed by a 78.6 per cent increase in allocation towards the production linked incentive (PLI) schemes"".
The ability of companies to orient their product portfolio towards chronic therapies for diseases like cardiovascular, anti-diabetes, anti-depressants, and anti-cancers, which are on the rise, will also play a role in future domestic sales growth, according to observers. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit Indian pharmaceutical companies, it is opined. Successful companies businesses will focus on specialty products and therapies. The move from volume to value led growth will drive innovation within the pharmaceutical sector.
In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.
References:
v
" A focus on progress of pharmaceutical industry of India (indiatimes.com)vl
" https://www. pharmabiz.com/ArticleDetails. a spx?aid=166149&sid=1e. Internal control systems and their adequacy
The Company maintains appropriate systems of internal control, including monitoring procedures, to ensure that all assets are safeguarded against loss from unauthorised use or disposal. Company policies, guidelines and procedures provide for adequate checks and balances and are meant to ensure that all transactions are authorised, recorded and reported correctly.
The Internal Auditor reviews the effectiveness and efficiency of these systems and procedures to ensure that all assets are protected against loss and that the financial and operational information is accurate and complete in all respects. The Audit Committee approves and reviews audit plans for the year based on internal risk assessment. Audits are conducted on an ongoing basis and significant deviations are brought to the notice of the Audit Committee of the Board of Directors following which corrective action is recommended for implementation. All these measures facilitate timely detection of any irregularities and early remedial steps.
During the year, the Company conducted a detailed review of its internal control systems, evaluated the internal financial control systems with the Audit Committee and discussed relevant issues with internal and statutory auditors. Based on the recommendations of the Audit Committee, the Board has stated in its responsibility statement that the Company followed proper internal financial controls and that such internal financial controls are adequate and were operating effectively.
f. Personnel
The Company regards its employees as a great asset and accords high priority to training and development of employees.
Number of employees in the Company as on March 31, 2024 was 62.
Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 (‘the Act) read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed to this report as an Annexure A.
In terms of the provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of employees drawing remuneration in excess of the limits set out in the said Rules forms part of this Report. However, in terms of first provision of Section 136(1) of the Act, the Annual Report and Accounts are being sent to the members and others entitled thereto, excluding the aforesaid information. If any member is interested in obtaining a copy thereof, such member may write to the Company Secretary & Compliance Officer, whereupon a copy would be sent.
Corporate Social Responsibility
The Company continues to support various initiatives in the areas of health. These activities are in accordance with Schedule VII of the Act. The Board of Directors and CSR Committee review and monitor from time to time all the CSR activities being undertaken by the Company. The CSR Policy adopted by the Board of Directors is available on the Companys website at: novartis.com/sites/novartis_in/files/NIL CSR Policy Final_0_0.pdf
Health: The Government of India announced its commitment to eradicate leprosy from the country by year 2030. Aligned with this vision, the Company reinforced its commitment to leprosy as part of its CSR work in India. The Company continued its support to a non-profit organization with projects based in Andhra Pradesh and Maharashtra. The project gives students affected by leprosy the ability to get jobs through vocational training and build a community of empowered young people who can further empower their families and communities.
The Annual Report on Corporate Social Responsibility Activities in terms of Section 135 of the Act and Rule 8(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 as amended by Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, effective January 22, 2021 read with Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022, effective September 20, 2022 (hereinafter referred to as ‘CSR Rules) is annexed herewith as an Annexure B.
Related Party Transactions
The Audit Committee approved all the Related Party Transactions (‘RPTs) entered into during the year under review, from time to time.
The Audit Committee granted omnibus approval for RPTs as per the provisions and restrictions contained under the Act read with SEBI Listing Regulations. A statement giving details of all Related Party Transactions is placed before the Audit Committee for their review on a quarterly basis.
The Company has formulated a ‘Policy for dealing with Related Party Transactions (‘Policy) which includes dealing with material RPTs. The Board at its meeting held on May 19, 2022, as recommended by the Audit Committee, considered and approved amendments to the said Policy in line with the amendments in the SEBI Listing Regulations vide SEBI Notification (SEBI/LAD-NRO/GN/2021/55) dated November 09, 2021 and Circular (SEBI/HO/CFD/ CMD1/CIR/P/2021/662) dated November 22, 2021 read with clarificatory SEBI Circular (SEBI/HO/CFD/CMD1/CIR/P/2022/40) dated March 30, 2022. The updated Policy is available on the website of the Company at: https://www.novartis.com/in-en/sites/novartis_ in/files/Policy%20for%20dealing%20with%20Related%20Party%20Transactions.pdf
Further, in terms of the provisions of Sections 177 and 188(1) of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014 and Regulation 23 of the SEBI Listing Regulations, all the requisite approvals were taken for the contracts/arrangements/ transactions entered into by the Company with its related parties, during the year under review.
All transactions with related parties were in accordance with the Policy formulated by the Company.
Pursuant to Clause (h) of sub-section (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014, the particulars of contracts/arrangements entered into by the Company with related parties referred to in sub-section (1) of Section 188 of the Act including certain arms length transactions under third proviso thereto are required to be disclosed in Form AOC-2. Form AOC-2 envisages disclosure of material contracts or arrangements or transactions on an arms length basis.
Details of the material RPTs in the financial year 2023-24, as per the Policy adopted by the Company, is disclosed as an Annexure C. The transactions disclosed in the said Annexure relates to material RPTs with Novartis Pharma AG for purchase, transfer or receipt of products, goods, active pharmaceutical ingredients, materials, services and other obligations as approved by members under erstwhile Clause 49(VII)(E) of the Listing Agreement at the 67th AGM of the Company held on July 23, 2015.
The details of the related party transactions as per Indian Accounting Standards (IND AS) - 24 are set out in Note No. 31 to the Financial Statements of the Company. The Company in terms of Regulation 23 of the SEBI Listing Regulations, submits disclosures of all related party transactions to the stock exchanges, within time stipulated and in the format stipulated under the said SEBI Listing Regulations.
Risk Management
Pursuant to the Regulation 21 of the SEBI Listing Regulations, your Company has constituted a Risk Management Committee (‘RMC) to identify elements of risk in different areas of operations and to develop policy for actions associated to mitigate the risks.
The RMC is supported by Internal Risk Steering Committee, risk champions and on some occasions supported by an external risk advisory firm. The teams undertake assessment of internal and external risks, adopts the risk mitigation plan and regularly monitors them in a structured and controlled environment. The Committee provides updates on risk management to the Audit Committee of the Board of Directors of the Company on a regular basis. There are no risks, which in the opinion of the Board, threaten the existence of your Company.
Details of composition of the RMC and the Risk Management Policy, adopted by the Board, is provided in the Report on Corporate Governance, which forms part of this Report.
Green Initiative
We request all the shareholder to support the ‘Green Initiative of the Ministry of Corporate Affairs and Companys continuance towards greener environment by enabling the service of Annual Report, AGM Notice and other documents electronically to your email address registered with your Depository Participant/ RTA.
Cautionary Note
The statements forming part of the Boards Report may contain certain forward-looking remarks within the meaning of applicable securities laws and regulations. Many factors could cause the actual results, performances or achievements of the Company to be materially different from any future results, performances or achievements that may be expressed or implied by such forward looking statements.
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