Samrat Pharmachem Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY STRUCTURE AND DEVELOPMENTS

Your Company is a producer of pharmaceutical chemicals. The intermediates produced are used in pharmaceutical and chemical industries. Your Company is amongst the manufacturers who produce for local and international needs of the pharmaceuticals and chemicals industry. The pharmaceutical and chemical industry is growing at a rapid pace every year. This results into growth of the support or intermediate industry like us.

OPPORTUNITIES AND THREATS

The company looks forward optimistically for all round growth in turnover & profitability in the ensuing years. Your company has taken effective steps to realize the dream performance in the years to come. The company intends to double its turnover in a short period of time. The company has taken effective measures to improve quality of products and its productivity to outwit competitor from domestic and international market.

The company has registered good sales growth & earned reasonable profit during the current financial year. The company has plans to widen the product range by increasing the basket of products thereby enlarging the customer and sales base.

PRODUCT PERFORMANCE

The company has two plants producing varied items. The basic purpose of producing in two different plants is to improve efficiency and manageability. Your Company shall achieve sustainable growth in both plants by modernization and automation of operations. According to your Directors, these plants facilitate better division of labour, enable us to develop expertise in each plant and their respective items, and hence improve productivity and profitability of the Company.

BUSINESS OUTLOOK

The Indian pharmaceutical industry is the worlds third largest in terms of volume and ranks 11th in terms of value. It is among the faster-growing markets and the largest exporter of generic drugs by volume. Outside of the US, India has the largest number of USFDA-approved pharmaceutical manufacturing facilities. Over the last year, India played a crucial role in supplying therapeutic drugs for COVID-19 treatment across the world and is also one of the key manufacturers of some of the COVID-19 vaccines. Going forward, India is likely to maintain a leadership position in the manufacture and supply of high- quality generic medicines as well as a major manufacturer of COVID-19 vaccines. The Indian pharmaceutical market recorded ~9.5% CAGR between 2016-20 to reach US$21 Billion. It is expected to grow at 8-11% CAGR to US$29-33 Billion by 2025. The COVID-19 pandemic has resulted into enchancement of capacity utilization and growth in CAPEX in the pharmaceutical industry world over.

RISKS AND CONCERNS

Currency Risk:

Volatility in currency exchange movements results in transaction and translation exposure. Our functional currency is the Indian Rupee. Appreciation of the Rupee against any major currency could impact the reported revenue in Rupee terms, the profitability and also result in collection losses.

Following a currency hedging policy that is aligned with market best practices, to limit impact of exchange volatility on receivables and payables, forecasted revenue and other current assets and liabilities. Hedging strategies are decided and monitored by the Risk Management Committee of the Board convened on a regular basis.

Competition Risk : We feel that the major business risks are the stiff competition due to low priced products from countries like China and also from domestic manufacturers for certain products. However the company is trying to expand its range of products to cater to different segment of customers and market in order to absorb fall in sales and margins.

Credit Risk : We have been able to reduce the irrecoverable amounts to a very negligible level, notwithstanding the inevitability of having some debts which are not recoverable. Due to strict monitoring and disciplined distribution channels, we do not foresee any material risk on this count.

Dead Stocks/Slow moving items/Rejections Risk : Sometimes the quality of finished product becomes bad or is rejected by a customer. The Company has taken every step in the raw material procurement stage, production stage, packing stage, testing stage and delivery stage to minimize the risk of rejection. If due to some unforeseen reasons the goods are rejected or are not as per our in-house standards, the company has made a system to reprocess all such failed material. Minimum cost is incurred to make them into acceptable standards again. Further the products that have irregular demand or are sold in lesser quantities round the year are manufactured as per customers order only. Thus the company is successful in handling dead stocks, slow moving items and rejections.

Fire, Theft & Explosion Risk: The Company has been quite conscious of the inherent risk in our business. A lot of measures to safeguard the fixed assets and stocks in the factory are taken. The management has been regularly updating the risk profile and take necessary corrective steps like educating workers, insisting workers to wear gum boots, gloves, eye goggles, helmets etc, installing fire fighting equipments, putting sign boards, banning smoking in the premises, keeping hazardous materials in a safe and protected place etc. Apart from these measures, the company has also underwritten the various risks like fire, theft & burglary, earthquake, floods, riots, public liability, sale/purchase in transit etc with ICICI Lombard General Insurance Co Ltd.

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

The Company has instituted adequate internal controls, managed by professionals. The control mechanism duly supported by efficient integrated software ensures a proper documentation, accounting, reporting and safeguarding of assets. The Company has also well defined and established system of internal audit, which is periodically reviewed by the audit committee and steps taken to strengthen the control measures. The management and audit committee of the Board periodically reviews the observations and findings of the statutory auditors and ensures adherence to the well laid down policies, guidelines and procedures forming part of the internal control system.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

A satisfactory business performance with average volume growth in key products and business units, combined with productivity improvement, cost management and working capital management have contributed to the good operating results for the year. Also sharp focus on cost and margins has resulted in enhanced operational efficiency.

Financial Performance Income Statement

(Rs.) in Crores
Particulars 31/03/2021 31/03/2020 31-03-19 31-03-18 31-03-17
Revenue 179.02 137.45 111.14 92.52 71.14
Other Income 0.46 0.57 0.46 0.25 0.07
Total Income 179.48 138.03 111.59 92.77 71.21
Expenditure -171.64 -131.81 -109.52 -87.43 -68.02
Interest -1.28 -0.98 -1.06 -0.86 -0.68
PBDT 7.84 6.21 2.58 5.33 3.19
Depreciation -0.49 -0.43 -0.42 -0.41 -0.70
PBT 7.34 5.79 2.16 4.92 2.49
Tax -2.01 -1.55 -0.62 -1.70 -0.93
Net Profit 5.33 4.24 1.54 3.22 1.57
Equity 3.09 3.09 3.09 3.09 3.09
EPS 17.26 13.71 4.97 10.41 5.07
CEPS 18.85 15.09 6.32 11.74 7.32
OPM % 5.09 4.52 2.32 5.76 4.48
NPM % 2.98 3.08 1.38 3.48 2.20

Source: https://www. bseindia.com/stock-share-price/financials/results/530125

MATERIAL DEVELOPMENT IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONTS

The industrial relations have been satisfactory in the Registered Office Cum Factory and at the Corporate Office. There was loss of man-days due to COVID-19 pandemic manufacturing premises had remained shut for a few days during the start of financial year & office remained closed throughout lockdown period which affected industrial activities. A lot of initiatives have been undertaken by the Human Resource Department during the year. Apart from improvement in the system to align the compensation to the performance of the employees, steps are being taken by the management to provide training both inhouse and at recognized institutes to enhance the effectiveness of the employees. Steps are also being taken to focus on managerial and behavioural competence across the organization. Information Technology has been a focused area for improving the operational efficiency and as a tool for decisionmaking.

CAUTIONARY STATEMENT

Statement in the report of Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning applicable securities laws or regulations. These statements are based on certain assumptions and expectations for future events. Actual results could differ materially from those of future events. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting global and domestic demand supply, finished goods prices in the domestic and overseas market in which the Company operates, raw materials cost and availability, changes in Government regulations, tax regimes, economic developments within India and other factors such as litigation and industrial relations. The Company assumes no responsibility to publicly amend, modify or revise and forward looking statements, on the basis of any subsequent development, information or events.

By order of the Board of Directors
Place : Mumbai For Samrat Pharmachem Limited
Date : 30 June 2021
Lalit Mehta
Chairman & Managing Director
DIN : 00216681