1) Industry structure and developments
The Indian Pharmaceutical Market (IPM) is now valued at H2,16,091.7 crores with a year-on-year value growth of 7.6% as reported by IQVIA for MAT March 2024.
2) Opportunities and threats
The Indian market has a certain unique characteristics. Branded generics constitute greater than 70% of the retail market and prices are low due to the high level of competition. Early incumbents have dominated due to formulation development capacities. Though Indias rank is much lower in value terms, we rank 3rd in volume terms.
India is expected to break into top 10 countries in terms of spend on medicines as the spending is expected to grow at about 10% annually over the next 3ive years. This augurs well for the domestic industry. The Government has emphasised on cost reduction to make healthcare more affordable and generic drugs have remained in focus.
Indian pharmaceutical industry has seen a gradual increase in government healthcare spending and expansion of the private hospital sector. Government initiatives such as allowing 100% Foreign Direct Investment (FDI) in health and medical services and PLI schemes are benefiting the industry. The Government of India had announced the National Health Policy 2017 where the goal is to attain high level of health and well-being for all ages by improving access, improving quality, and making cost of healthcare delivery affordable. The Government also plans to increase health expenditure to 2.25% of gross domestic product by 2025. This is also expected to give a boost to the pharmaceutical sector. Several socio-economic factors, including increasing sales of generic medicines, continued growth in chronic therapies and a greater penetration in rural markets will further contribute to the growth of the Indian pharmaceutical market. Other contributing factors for growth are heightened health awareness, increasing af3luence, changing lifestyles resulting in higher incidence of lifestyle diseases and a fast-growing health insurance industry. In addition, low cost of production and R&D boosts the ef3iciency of Indian pharmaceutical companies.
The pandemic has accelerated digital adoption across the pharma value chain, right from drug development to patient connect and it is expected that the proliferation of technology will also aid in 3illing the existing gaps in the healthcare infrastructure. Through intelligent automation, companies are now able to gather an overall insight into a patients journey, from diagnosis to diseases management. This data-based insight, in turn, helps improve drug development and subsequently improves patient outcomes.
National List of Essential Medicines (NLEM) revision in 2022, resulted in 384 medicines coming under price control and at present, about 18.58% of the Indian market is under price control. During the financial year, while ceiling prices were revised for all scheduled formulations, there was no significant impact owing to a WPI based increase of 12.12%, for April 2023, which helped offset the price reduction. We expect prices to be stagnant in the current year since WPI based increase is just 0.00551%.
The industry growth is led by chronic disease segments viz. cardiovascular, diabetes, dermatology, oncology and is largely in3luenced by changing lifestyles. Intense price pressure in global regulated markets, emergence of new local players affecting the branded generic prices, delay in approval of manufacturing facilities by regulated authorities and increased regulatory intervention in price 3ixation for domestic formulations are threats faced by players in the industry.
The Government of India has announced Production Linked Incentive (PLI) scheme for Promotion of Domestic Manufacturing of critical Key Starting Materials (KSMs)
/ Drug Intermediates and Active Pharmaceutical Ingredients (APIs) in the Country. This could lead to opportunities for the Indian pharmaceutical sector in future.
The Department of Pharmaceuticals has issued the Uniform Code for Pharmaceuticals Marketing Practices 2024 ("the Code") on March 12, 2024, which delineates permissible and impermissible activities for ethically promoting drugs and addressing complaints regarding unethical marketing practices by pharmaceutical companies. It covers critical areas such as the conduct of medical representatives (MRs), the provision of brand reminders and free samples, Continuing Medical Education (CME) and relationships with Healthcare Professionals (HCPs) and support for research.
3) Segment wise performance
The Company is exclusively engaged in the pharmaceutical business and operates across Domestic Formulations, International Formulations and Active Pharmaceutical Ingredients (API).
During the year under review, the Domestic Formulations business achieved sales revenue of H386.12 crores, registering a growth of 15.0% over
the previous year. The growth was driven by higher prescription generation, augmented product portfolio through new product launches and line extensions and control on sales hygiene and market inventories. The Company continued to focus on rejuvenation of its product portfolio by host of measures such as diligent life cycle management of the legacy brands, increasing new launches in chronic and specialty therapies such as Cardiovascular-metabolic, Urology, Rheumatology, Gastroenterology and Dermatology and by entering clinical Dermatology segments. The Company also continued expanding customer coverage in targeted segment as well as in-clinic effectiveness of the 3ield force through extensive scienti3ic training, innovative product demonstrations, emphasis on focus brands and innovative promotional strategies.
The International Formulations business achieved sales revenue of H106.31 crores, registering a growth of 15.4% over the previous year. The business has its footprints across geographies like Germany, Italy, Canada, Myanmar, Philippines, Colombia, Vietnam, South Africa and Kenya. The Company is actively scouting for geographic expansion through strategic partnerships in India, as well as markets like EU, Canada, Australia, UK, Asia and Latin America, as well as targeting new customers and new products. The Company has executed its 3irst PAN European Out-license and supply deal for an immunosuppressant drug. The Company has 3iled for two new products dossiers in ANZ market. The Company has also won Germany and UK tenders for its 3lagship product.
The API business achieved sales of H85.05 crores and has grown by 6.5% as against to the previous year. Key APIs for the Company include viz Quinfamide, Azathioprine, Haloperidol, Risperidone and Propan the line Bromide.
4) Outlook
As detailed above, the outlook for Indian pharmaceutical market is positive. The Domestic Formulations business of the Company will continue to focus on building chronic therapies, specialty portfolios and a comprehensive life cycle management of current legacy products. The International Formulations business will focus on globalisation of existing products, development of new products, scouting of new partners and entry into new markets.
The Companys Formulation facility at Ankleshwar, Plant (F1) has WHO GMP (India), Nigeria and Kenya Health Authority certi3ications and Plant (F2) has WHO GMP (India), EU GMP (Hamburg Health Authority, Germany), TGA Australia GMP, Health Canada Drug Establishment License, Kenya, Ethiopia, Nigeria and Sudan Health Authority certi3ications. API facility at Navi Mumbai plant has WHO GMP (India), TGA Australia and PMDA Japan GMP Certi3ications. Such certi3ications testify to a hallmark of quality and shall help the Company to enter in new markets across multiple geographies.
The Company has also undertaken modernisation and expansion of both formulations and API plants with the objective of export business enhancement.
5) Risks and concerns
Some of the key brands of the Company are under NLEM. The list of NLEM is increasing. Also, more and more Fixed Dose Combinations (FDC) are coming under scrutiny. The regulatory environment across the globe is becoming more and more stringent and this makes entry into new geographies more challenging. The mandate to Doctors by the Medical Council of India to prescribe generic names of drugs can also have an impact on the branded generics.
6) Internal control systems and their adequacy
The Company has set up internal control procedures commensurate with its size and nature of the business. These business procedures ensure optimum use and protection of the resources and compliance with the policies, procedures and statutes. The internal control systems provide for well-Defined policies, guidelines and authorisations and approval procedures. The prime objective of such audits is to test the adequacy and effectiveness of the internal controls laid down by management and to suggest improvements.
7) Financial performance with respect to operational Performance
The total income during the year stood at H 589.26 crores. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) was H 135.36 crores. After deducting the Finance Cost of H 0.45 crores, Depreciation of H 17.07 crores and Taxes of H 30.18 crores, the Profit After Tax (PAT) was at H 87.66 crores.
8) Material developments in human resources/ industrial front
The Company has featured in Indias Top 500 Value Creators 2023 publication by Dun & Bradstreet to recognise corporate Indias most in3luential value creators from diverse sectors.
The Company 3irmly believes that its people are its most valued resource and that their ef3iciency plays a key role in achieving Defined goals and building a competitive work environment. In its pursuit to attract, retain and develop best available talent, several programs are regularly conducted at various levels across the Company. Employee relations continued to be cordial and harmonious across all levels and units of the Company.
The details regarding number of people employed as on March 31, 2024 are provided in Point No. 28 of the Boards Report forming part of the Annual Report.
9) Key financial ratios
Key Financial Ratios |
2023324 | 2022323 | Growth (%) |
Current Ratio | 2.31 | 2.57 | -10.1% |
Debt - Equity Ratio | 0.00 | 0.00 | - |
Debt Service Coverage Ratio | 0.00 | 86.05 | 100% |
Return on Equity Ratio | 23.38% | 21.99% | 6.3% |
Inventory Turnover Ratio | 5.96 | 5.76 | 3.5% |
Trade Receivables Turnover Ratio | 13.45 | 14.56 | -7.7% |
Trade Payable Turnover Ratio | 4.65 | 5.15 | -9.7% |
Net Capital Turnover Ratio | 3.45 | 3.18 | 8.6% |
Operating Profit Ratio | 23.26% | 20.96% | 10.9% |
Net Profit Ratio | 15.06% | 13.19% | 14.2% |
Return on Capital Employed | 31.56% | 29.71% | 6.2% |
Return on Investment: |
|||
Mutual Fund Investments | 7.45% | 6.81% | 9.4% |
Fixed Income Investment (F.D.) | 6.41% | 4.51% | 42.1% |
* Debt Service Coverage Ratio - There is an improvement in Profitability due to increased net margin, leading to Company becoming debt-free.
* Fixed Income Investment (F.D.) - Increase in return on account of increase in market yield and investment in longer duration Fixed Deposits.
Cautionary Statement
Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could in3luence the Companys operations include economic developments within the country, demand and supply conditions in the industry, input prices, changes in Government regulations and tax laws.
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