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MANAGEMENT DISCUSSION AND ANAIYSIS

Global Economy

The continued and pervasive impact of COVID-19, especially with the introduction of new variants, made 2021 yet another difficult year. Financial markets and businesses were disrupted as a result of supply-side constraints. To ensure that credit was available to businesses and individuals, central banks proposed a variety of measures. Global vaccination campaigns, combined with accommodating policy measures, aided economic recovery. However, many low-income emerging economies are still grappling with the pandemics uncertainty. Supply chain disruptions, semiconductor shortages, and the ongoing energy crisis have exacerbated the situation. According to the International Monetary Fund (IMF) forecast for January 2022, global growth will be 4.4% in 2022, down from 5.9% in 2021, and will continue to declineand the rate will fall to 3.8% in 2023. However, the forecast is contingent on improved health conditions brought about by aggressive vaccination campaigns, as well as the availability of advanced and effective therapies. If no new outbreaks occur, the negative impact is expected to lessen by the second quarter of 2022. (3)

Outlook

Despite the pandemics impact, unprecedented collective policy efforts by governments and central banks, combined with the resilience and innovations of private enterprises, have helped to reduce long-term economic, psychological, and physical damage worldwide. While the Russia-Ukraine crisiss trajectory remains uncertain, its impact on the global economy will endure. Many governments will need to cushion the impact of rising energy prices in the short term by diversifying energy sources and increasing efficiency wherever possible. Full economic recovery appears to be further off, but it is possible if businesses and governments collaborate across borders and disciplines.

Indian Economy

According to World Bank projections, India will remain the worlds fastest-growing major economy from 2021 to 2024. According to the Economic Survey 2021-22, Indias GDP will growat a 9.2 percent annual rate in 2022, up from a negative rate in the previous year. Increased capital expenditure in India is expected to boost the economy. The Capex budget was increased by 35.4 percent in the Union Budget 2022-23, to 7.5 trillion, or nearly 2.9% of GDR The IMF anticipates that Indias prospects for 2023 will improve as credit growth and, eventually, investment and consumption improve. The Indian governments response to the pandemic has been swift and decisive, with the government providing safety nets for vulnerable groups while iteratively responding with policy support. (3)

Outlook

Indias broad range of financial and public health response to the crisis has helped India recover, and several economic reforms have helped mitigate the long-term adverse effects of the crisis. By enabling a strong financial system and economic budgets to support economic recovery, the country appears to be in a good position to resume private sector investment.

Industry Specific

Global Pharmaceutical industry

The Global Pharmaceutical Market is projected to growth at 9.1% CAGR i.e. from USD 1454.66 billion in 2021 to $1587.05 billion in 2022. The companies recovering from Covid impact and rearranging their operations is one of the main growth factors. The Covid had earlier led to Containment measures with remote working, social distancing, and having a major impact on commercial activities which resulted in the operational challenges. With a CAGR of 7.7%, the market is projected to reach $2135.18 billion in 2026. (7)

With an aged population of 65 years or over of 703 million in 2019, the population profiles of most of the countries is becoming older. The patient pool for major chronic diseasessuch as diabetes, hypertension, rheumatoid arthritis and cancer has grown. The pharmaceuticals is driven by the demand of patient pool which is significantly impacting the market growth during this period. (5)

Indian Pharmaceutical Industry

India is the worlds largest supplier of generic medications, accounting for 20% of the worldwide supply by volume. With the Indian pharmaceutical market growth was 6.6% Y-o-Y in June 22. Double-digit growth is expected over the next five years due to Indias strong presence in generics space. (1&9)

According to the Indian Economic Survey 2021, the domestic market is predicted to triple in the next decade. Indias domestic pharmaceutical industry was worth US$ 42 billion in 2021, and it is expected to grow to US$ 65 billion by 2024, and then to US$ 120 billion by 2030. It is 3rd in terms of volume and 14*^10 terms of value. (1)

It has grown at significant a rate both domestic and globally in last 5 decades. Being known as the "Pharmacy ofthe world", the IPM contributesmore than 20% of the global generics market by volume and 62% of global vaccination demand. While the local market has expanded at a comparable rate to GDI^ the entire expansion has been driven by the industrys leadership in delivering generic formulations to markets across the world. (5)

Global Exports

In 2021, global revenues from medical exports totalled $426.8 billion USD.The overall value of drugs and medicines delivered via export markets expanded by an average 24.2% for all exporting countries since 2017 when drugs and medicines shipments were valued at $343.6 billion.There was a year-over-year gain of 3.5% from $412.3 billion during 2020. (8)

The top 5 pharma exporters are Switzerland, Germany, United States of America, Belgium and France. Collectively, major pharmaceutical suppliers accounted for 48.3% of globally exported pharmaceuticals in 2021 .Among continents, European countries sold the highest dollar value worth of exported drugs and medicines during 2021 with shipments from Europe accumulating to $337.5 billion or 79.1% ofthe global total. In second place were pharmaceutical exporters in Asia at 10.2% while another 9.4% of worldwide drugs and medicine shipments originated from North America.(8)

The global pharmaceutical trade is expected to reach a size of US$1 -1.3 trillion by 2030 (5)

Indian Exports

Over the years, domestic market rose at a CAGR of 4.5% from USD 17.8 billion in FY17 to USD 21.3 billion in FY21 while pharma exports from India grew at a faster CAGR of 9.9% from USD 16.8 billion in FY17 to USD 24.4 billion in FY21. (4)

Indian pharma manufacturers export nearly half of the pharma production, both in terms of volume and value, to the US, UK, South Africa, Russia and other countries. However, there remains a significant opportunity, largely untapped across Japan, China, Australia, ASEAN countries. Middle East region, Latin Americas and other African countries. (5)

The pharma outbound shipments by India are majorly driven by the American continent. During FY22, the American continent accounted for 38.8% (USD 9.5 billion) followed by Europe, Asia, Africa and Oceania with a share of 21.2% (USD 5.2 billion), 20.5% (USD 5.1 billion), 17.6% (USD 4.3 billion) and 1.9% (USD 0.5 billion), respectively. (4)

The IPM supplies over 50% of Africas requirement for generics, ~40% of generic demand in the US and ~25% of all medicine in the UK (1), along with catering to over 60% of the global vaccine demand. While the global formulations trade value is about US$652 billion (2019), Indias share of exports in the global trade was only about 2.5%. With increased pricing pressure on the global generics trade as well as increased competition in Indias established export corridors, the current portfolio of products is expected to further extend this divide. The ambition is to garner a global share of 6-7% by value to attain a size of ~US$73 billion. (5)

Government Initiatives

In the light of improving pharmaceutical market, the government introduced various initiatives. In Feb 2021, the government of India approved a PLI scheme for the pharmaceutical sector from FY21 to FY29 which is projected to attract the investments of about Rs. 15,000 cr. The scheme will help the incremental sales of Rs. 2,94,000 crore and exports of Rs.1,96,000 crore between FY23 and FY28.An additional outlay of Rs. 197,000 crore in June 2021 was approved for over 5 years in 13 key sectors such as API, drug intermediaries and key starting materials. In March 2022, under the scheme SPI* a total financial outlay of Rs. 500crore for the period FY 21 -22 to FY 25-26 were announced. As per the Union Budget 2022-23, Rs. 3,201 Cr has been set aside for research and Rs. 83,000 Cr has been allocated for the Ministry of Health and Family Welfare.(1)

Sources:

1. IBEF

2. www.investindia.aov.in/sector/pharmaceuticals

3. IMF Jan 2022 Report

4. CareEDGE research

5. Indian Pharmaceutical Industry 2021: Future is now - EY

6. World bank

7. Pharmaceuticals Global Market Report 2022 (globenewswire.com)

8. Drugs and Medicine Exports by Country 2021 (worldstopexports.com)