Panchsheel Organics Ltd Management Discussions.


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.


FY 2020-21 has been an unprecedented year in modern times, with the COVID-19 pandemic impacting human life extensively across the globe. Its impact on the economic front too has been significant. The slowdown across economies witnessed in 2019 exacerbated further in 2020 by the shock delivered by the pandemic. As a result, the global GDP is believed to have contracted by ~3.3% in 2020 with all major economics moving into negative territory. China was the only exception amongst the major economies to have posted a positive growth in 2020, albeit at a much lower rate of 2.3%. The economic upheaval could have been much more severe had it not been for the quick and synchronized response from the central banks and governments globally, although this too varied across countries. The increase in balance sheet sizes of almost all the central banks and the supportive measures undertaken by governments globally ensured easy availability of funding and support for both private and public consumption. This support has been instrumental in the progressive recovery seen in the last two quarters of the calendar year as compared to the significant contractions observed in the first two quarters. The sequential recovery in global trade coupled with easy liquidity conditions have also led to a sharp rise in commodity prices, especially in the last quarter of FY 2019-20. This has been further aggravated by large-scale disruptions in the global supply chain, with shipping line capacities and container availability posing a major challenge.


The Indian economy too witnessed similar stress with the nationwide lockdown beginning from end of March 2020 bringing business activities to a standstill for the major part of April and May 2020. An accommodative Monetary Policy of the Reserve Bank of India (RBI) and Fiscal Policy interventions by the Central Government, coupled with the gradual reopening of the economic activities from June 2020, have led to a sequential recovery in economic output. India‘s real GDP clocked a 0.4% growth in the

October-December 2020 quarter on a year-on-year basis after a sharp fall in the first two quarters of FY 2020-21. However, the recovery is largely centered around the formal part of the economy. The informal players, especially the Micro, Small and Medium-sized Enterprises (MSMEs) in many industries have taken a disproportionately large hit. Inflation picked up over the year, despite the pandemic, primarily led by food inflation and higher fuel taxes. On the exchange rate front, post the initial bout of depreciation in the Indian currency in the beginning of the financial year, the currency has been relatively well supported on account of robust portfolio inflows in the economy as well as a better current account position.


The active pharmaceutical ingredients market size is slated to grow by $ 60.56 billion between 2020-2024. Asia was the largest market for API in 2019, and the region will continue to offer maximum growth opportunities to market vendors during 2020-2024. The growing partnerships between Asian API manufacturers and global vendors, along with policy revamp in the region, preferring intellectual properties, will significantly encourage the API market growth in Asia. Almost 66% of the market‘s growth will originate from Asia. Japan, China, and India are the key markets for active pharmaceutical ingredients in Asia. The increased healthcare expenditure by the urban population and rapid surge in the aged population are influencing the APIs market growth, which has led to an increase in the number of DMF filings for APIs.


The MSME sector is one of the major generators of employment and is also a significant contributor to the overall growth of the country‘s economy. The MSME sector contributes Rs. 20 lacs crores to Goods & Services, contributing to 40 per cent of GDP of India. Similarly, in Indian Pharma industry, about 60 per cent of the manufacturing is contributed by MSMEs within an annual turnover of approximately Rs. 60,000 crores or $9 billion which is an integral part of predominantly formulations and to an extent API industry more so for intermediates. The industry is extremely fragmented with approximately 24,000 units in the MSME sector accounting for 70 per cent of production by volume and 50 per cent by value on ex-factory basis. SMEs contribute to almost 90 per cent to domestic formulation and about 50 per cent to exports. (Source: Express Pharma)


The pharmaceutical industry in India, US$40 billion by value, is worlds 3rd largest by overall volume and worlds largest as provider of generic medicines, with 20% and 3.5% share of total global pharmaceutical exports by volume and value respectively to more than 200 countries and territories, as in 2021. With industry standards compliant, mega production capabilities and a large number of skilled domestic workforce, Indian exports meet the standards and requirements of highly regulated markets of USA, UK, European Union and Canada. According to the Department of Pharmaceuticals and Ministry of Chemicals & Fertilizers, domestic pharmaceutical market turnover reached Rs.129,015 crore (US$18.12 billion) in 2018, growing 9.4 per cent year-on-year and exports revenue was US$17.28 billion in FY18 and US$19.14 billion in FY19. As of 2021, most of pharmaceuticals made in India are low cost generic drug which comprise most of pharmaceutical exports of India. Patented medicines are imported. active pharmaceutical ingredients (APIs) are imported from China (66% supplies by volume worth US$2.4 billion) and Germany (US$1.6 billion) as well as from US, Italy and Singapore. To foster an Atmanirbhar Bharat by enhancing the R&D, Make in India product development and high-value production capabilities, import substitution and domestic manufacture of APIs, the government has introduced a US$2 billion incentive program which will run from 2021-22 to 2027-28. In 2019 the Department of Pharmaceuticals announced that as a part of the Make in India initiative, drugs for local use and exports must have 75% and 10% local APIs respectively and a bill of material must be produced for verification.


The coronavirus pandemic and its resultant lockdown badly affected all major sectors of the economy, but it has come as a boon in disguise to the Indian pharmaceutical sector. Though some part of pharmaceutical business was affected such as supply chain and import of active pharmaceutical ingredients from China, CoVID-19 has provided some opportunities in the pharmaceutical sector, especially India.

In generic market, India is facing high competition from China for the supply of APIs at lower cost. India imports 70 per cent of the API needs from China. This created a lot of hardship to some of the domestic pharmaceutical firms manufacturing certain key

APIs. India‘s health security was under threat due to heavy dependence on China coupled with shortage in supply of key APIs.

Some of the key APIs were crucial to mitigate the burden of accelerating disease like tuberculosis, diabetics and cardiovascular diseases in India. The current dependence of Indian pharmaceutical companies on Chinese APIs created a serious concern for national health security, prompting the GOI to set up a taskforce for reviewing the internal API sector.

In view of the Covid-19 pandemic situation, the GOI has taken important steps by proposing an incentive package of Rs. 13.76 billion for the promotion of domestic manufacturing of critical key starting materials, drug intermediates, APIs and medical devices.


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.


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.


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.



? 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.


? 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.


? 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.


? 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 life-saving 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.


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

PARTICULARS Financial year ended March 31, 2021 Financial year ended March 31, 2020
Sales & income from
Domestic 46,79,03,779.50 48,53,66,186.00
Export 2,70,43,262.00 1,96,11,219.00
Total Sales 49,49,47,042.00 50,49,77,405.00
Less : Excise Duty 0 0
Add: Other Income:
Other operating Income 17,99,383.00 18,81,318.00
TOTAL INCOME 49,67,46,424.53 50,68,58,723.24
Operating Expenditure 31,85,74,270.94 32,06,51,892.97
Administrative and other expenditure 12,19,52,699.13 10,66,16,120.18
Finance Charges 43,07,281.18 30,67,283.90
(Increase)/ Decrease in stocks (3,21,66,714.94) (88,30,592.91)
Depreciation for the Year 1,11,42,445.28 1,11,26,877.78
TOTAL 42,38,09,981.59 43,26,31,581.92
Profit Before Tax 7,29,36,442.94 7,42,27,141.32
Less: Current tax (2,18,73,632.00) (2,26,70,568.00)
Excess or short income tax provision (3,70,610.10) (11,13,513.00)
Deferred Tax 13,74,699.00 13,37,884.66
Profit after Tax 5,00,58,722.04 5,28,94,457.98

(1) Total Income:

Our revenue has decreased from Rs.50,68,58,723.24 to Rs.49,67,46,424.53as compared to previous year 2019-20. Sales in the domestic market have decreased, however it has increased in the export market. The overall sales have however decreased.

(2) Operating Expenditure:

The operating expenditure has decreased from Rs.32,06,51,892.97 to Rs.31,85,74,270.94as compared to previous financial year 2019-20.

(3) Administrative and other Expenditures:

The administrative expenses have increased from Rs.10,66,16,120.18 to Rs.12,19,52,699.13 as compared to previous financial year 2019-20.

(4) Depreciation:

The Depreciation cost has increased from Rs.1,11,26,877.78 to Rs.1,11,42,445.28 in Financial Year 2019-2020.

(5) Net Profit:

Net profit for the financial year 2020-21 is Rs.5,00,58,722.04.


(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.


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.


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.