Panchsheel Organics Ltd Management Discussions

INTRODUCTION AND OVERVIEW OF PHARMACEUTICAL INDUSTRY

The pharmaceutical industry plays a unique role in improving the lives of the patients. It is also one of the world‘s fastest growing industries and amongst the biggest contributors to the world economy.

CMS estimates retail spending on prescription drugs at 9.2% of NHE in 2018 and projects that this share will fall to 9.0% by 2028. We estimate that non - retail drug spending accounted for an additional 4.5% of NHE in 2018, growing to 4.9% by 2028.

GLOBAL ECONOMIC OUTLOOK1

As per the International Monetary Fund, global growth for 2025 and 2026 is projected at 3.3%, which is lower than the historical average. This is largely on account of global financial conditions, including the strengthening of the US$, and intensified policy related uncertainty, resulting in divergence between a potential upside for the United States and downside for most other economies. Likewise, world trade volumes are also expected to be slightly lower for 2025 and 2026, while global inflation is estimated to decline to 4.2% in 2025 from historical levels. Balancing trade-offs between inflation and real activity, structural reforms and stronger multilateral cooperation are the need of the hour to manage this divergence, sustain growth and stability and address global challenges.

Global Pharmaceutical Market Outlook2 The global pharmaceutical market is estimated at ~US$1.7 tn in 2024 and is expected to grow at a compounded annual growth rate ( CAGR‘) of 6%. The growth is driven by increasing prevalence of chronic diseases, ageing population, and increasing healthcare spends. Rising demand for patient-centric solutions have resulted in expedited regulatory pathways as well as technological innovations in drug delivery, for example, personalised medicine, targeted therapies, etc. as well as preventative healthcare solutions.

Strategic collaborations and investments in research and development ( R&D‘) continue to drive product development, market competitiveness and access to healthcare, particularly in emerging markets.

Recent trends observed in the sector have been articulated as follows:

Patent cliff to pave way for growth in Generics and Biosimilars Over the past 20 years, the top 20 pharmaceutical companies have each invested about US$ 5 bn annually in R&D, resulting in over 800 new drugs for patients. However, by 2030, many of these drugs, ~ 100 of them being biologics will lose their exclusivity and same is estimated to be US$ 300 bn. About US$ 150 bn of this impact is expected by 2027. This shift opens the door for more generic and biosimilar drugs to enter the market, which could lower costs and improve treatment access for patients. In response, governments in developing countries are working to expand healthcare access, particularly in underserved regions.

Innovation and collaborations to manage pipeline and revenue gaps Pharmaceutical companies respond to gaps created by patent cliffs through continued investment in innovation, particularly in specialty and rare diseases. As per a recent report by IQVIA Institute, global R&D funding reached a 10-year high and total R&D spends of large pharmaceutical companies have increased by over 25% for the first time in 2024

Impact of Digital transformation on organisational strategies While spends are increasing, R&D productivity remains a concern for pharmaceutical players. Advances in Artificial Intelligence

( AI‘) and Machine Learning ( ML‘), cloud computing, generative AI, and other advanced analytics are increasingly finding applications within life sciences. Pharmaceutical companies are looking to augment their traditional R&D process by leveraging AI and digital twins, particularly in target selection, drug candidate discovery, clinical planning and design, and R&D decision-making and streamlining operations

Bracing for global uncertainties and business volatilities Companies today are facing unpredictable challenges such as inflation, economic recession, and potential disruption in supply chain and manufacturing due to geo-political conflicts. Companies are evaluating their potential impact and working to address known challenges through approaches such as: y Building resilient and adaptable supply chains; y Optimising operating models with a focus on performance improvement initiatives, boosting productivity and reducing costs; y Navigating increasingly complex customer relationships to improve patient outcomes; y Creating value through sustainability.

SEGMENT-WISE PERFORMANCE

The operation of the Company consists of a single segment. Our Company deals in bulk drugs. Hence, Accounting Standard (AS-17) on Segment Reporting issued by the Institute of Chartered Accountants of India does not apply.

OUTLOOK

The likely duration, intensity and spread of the corona virus has brought in a lot of uncertainty into the global and domestic economic outlook. The concerns have transformed from the initial impact of imports from China on the domestic supply chains to the domestic and external demand shock.

The duration of the same remains uncertain with social distancing and lockdowns raising the prospects of production shutdowns and job losses in some sectors. A revival in domestic investment is likely to be hindered, given the increased risk aversion on a global scale, and renewed concerns about resilience of the financial sector.

In the near term, the negative impact of the Covid-19 outbreak on economic growth and sentiment may be modestly mitigated by higher government spending, a brighter outlook for crop yields and emergency stockpiling of essential items. Furthermore, the fall in commodity prices would provide mild cushioning to earnings in the near term, which provides some comfort.

FACTORS THAT MAY AFFECT OUR RESULT OF OPERATIONS

Our financial conditions and results of operations are affected by numerous factors inter alia

Growth of unorganized sector and threat from local regional players;

Change in freight and forwarding charges;

General economic and business conditions;

Our Company‘s ability to successfully implement our growth strategy;

Fluctuation in Exchange rates;

Prices of raw materials we consume and the products we manufacture;

Changes in laws and regulations relating to the industry in which we operate;

Changes in political and social conditions in India.

PANCHSHEEL ORGANICS SWOT ANALYSIS

- STRENGTHS

? Extensive experience in specialty chemicals and pharmaceutical intermediates;

? Stronger sustainability and compliance framework with thrusts to continuously improving and adding on to it; ? Export sales in more than 15 countries; ? Sound manufacturing capability of APIs; ? Strategic location of manufacturing units with easy access to raw materials and utilities.

- WEAKNESS

? Products are highly dependent on the availability of raw materials; ? Macro factors may expose various risks impacting the growth;

? Global nature of operations like unfavorable currency movements, etc, expose the business to losses.

- OPPORTUNITIES

? Domestic Markets

The Company has a wide range of pharmaceutical products in its portfolio. The Company tries and taps every lawful opportunity coming it‘s way and follows a focused approach and increases marketing efforts. All these have resulted in increased growth of the Company in the recent years. In the coming years, it shall strive hard to build a strong reputation for themselves and carve a niche for our products.

? International Markets

The Company is continuously trying to build a large overseas business and revenue from export business accounts for a sizeable component of Company‘s total turnover. The

Company is continuously tapping potentially new markets and exporting a wide range of products to these countries.

- THREATS

? Due to emergence of corona virus, API production has been hampered in China, which has impacted the Company‘s supply chain;

? Other low-cost countries such as China and Israel are affecting outsourcing demand for Indian pharmaceutical products; ? Entry of foreign players (well-equipped technology-based products) into the Indian market; ? Drug Pricing: The domestic pharmaceutical industry is very much dependent on the government‘s Drug Pricing Policy. It is important for the Government to introduce free and fair competition rather than arbitrary drug control measures to decide prices of essential drugs. This will ensure that Companies like us can manufacture and market all the vital lifesaving drugs at economical prices; ? Rising Costs and Availability of Materials;

? The prices of many API‘s and intermediates have risen significantly due to restriction in production by various Chinese manufacturers. Other factors contributing to such price hike are rise in price of petroleum-based products, frequent shortages and general inflationary conditions. All these adversely affect the production schedules and overall margins of our Company‘s products.

a. RESULTS OF OPERATIONS:

The break-up of Revenue and Costs of the Company is as given below:

PARTICULARS	Financial year ended March 31, 2025	Financial year ended March 31, 2024
INCOME(A)
Sales & income from
Operations:
Domestic	1,05,79,68,286.75	1,03,91,09,107.0
Export	1,29,49,881.40	1,29,14,800.00
Total Sales	1070918168.15	1052023907.70
Less : Excise Duty	0	0
Add: Other Income:	8,66,200.96	1,63,159.00
Other operating Income
		2,45,80,497.24
	3,07,28,855.07

 

TOTAL INCOME EXPENDITURE(B)	1,10,25,13,224.18	1,07,67,67,563.94
Operating Expenditure	83,32,15,460.30	76,64,70,811.15
Administrative and other expenditure	12,48,02, 769.75	10,22,08,421.79
Finance Charges	37,42,395.30	26,74,684.04
(Increase)/ Decrease in stocks	(6,21,79,684.00)	(58,59,760.36)
Depreciation for the Year	2,19,62,435.34	1,73,84,917.67
TOTAL	92,15,43,376.69	88,28,79,067.63
Profit Before Tax	18,09,69,847.49	19,38,88,489.64
Less: Current tax	4,65,61,162.17	5,25,66,881.17.33
Excess or short income tax provision	-	-
Deferred Tax	(35,36,357.29)	2,43,064.18
Profit after Tax	13,79,45,042.61	14,10,78,544.29

(1) Total Income:

Our revenue has Increased from Rs. 17,67,67,563.94 to Rs. 1,10,25,13,224.18 as compared to previous year 2023-24. Sales in the domestic market have increased, however it has increased in the export market. The overall sales have however decreased.

(2) Operating Expenditure:

The operating expenditure has Increased from Rs. 76,64,70,811.15to Rs. 83,32,15,460.30as compared to previous financial year 2023-24.

(3) Administrative and other Expenditures:

The administrative expenses have increased from Rs.10,22,08,421.79 to Rs.12,48,02,769.75 as compared to previous financial year 2023-24.

(4) Depreciation:

The Depreciation cost has increased from Rs. 1,73,84,917.67 in Financial Year 2023-24 to Rs. 2,19,62,435.34 current year.

(5) Net Profit:

Net profit for the financial year 2024-25 is Rs.13,79,45,042.61

b. OTHER FACTORS:

(1) Known trends or uncertainties

The world economy has witnessed an unprecedented economic crisis causing severe recessionary trends in various countries, but Indian pharmaceutical industry remained less affected compared to other sectors.

(2) Future relationship between costs and revenues

The Company doesn‘t see substantial increase in labor cost or other costs related to the product, except that raw material prices may go up in the near future due to rise in commodity prices. However, any increase in raw material prices would be duly covered in the sales price of the product.

(3) Dependence on Single or few suppliers / Customers

The Customer base of the Company is very strong it does not deal with a single customer or supplier. The Company has a very cordial relationship with all the customers and suppliers with whom they have been dealing since a very long time.

(4) Significant developments subsequent to the last financial year

In the opinion of the Directors, there are no significant changes since the date of the last financial statements, which could materially affect the operations, and profitability of the Company.

TRANSACTION(S) IN WHICH THE MANAGEMENT IS INTERESTED IN THEIR PERSONAL CAPACITY

During the year, there are no materially significant related party transactions entered into with the management that may have potential conflict with the interest of the Company. For more details, refer Notes to the Financial Statements.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis Report describing the Company‘s objectives, projections, estimates and expectations, may be forward looking statements‘ and are within the meaning of the applicable laws and regulations. Actual results might differ substantially or materially from those expressed and implied. Important developments that could affect the Company‘s operations include a downtrend in the international market, fall in onsite, offshore rate and significant changes in political and economic environment, environment standards, tax laws, litigations and labor relations.