Shasun Pharmaceuticals Ltd Merged Management Discussions

Overview and Company Performance

India is recognized as one of the leading global players with large number of Drug Master Files (DMFs) and dossiers registrations for Active Pharmaceutical Ingredients (API) and formulations, with highest number of manufacturing facilities approved by US FDA in any country outside US. Your Company has taken lot of initiatives as part of growth strategy to take advantage of the above.

The following sections discusses such initiatives on a divisional basis-

API Business

On a consolidated basis, API and its intermediate business contributed close to 57% of the turnover of the Company. On a standalone basis, it contributed close to 70% of the total sales.

Your Company’s strategy with respect to this Strategic Business Unit ("SBU") is to enhance sales and Profitability. This has been achieved through the following measures:

• New products commercialization which are under development

• Capacity enhancement of the existing products to meet the growing demand

• Process optimization initiatives

Company’s current API portfolio consists of Ibuprofen, Ranitidine, Nizatidine, Gabapentin, Levetiracetan and Cycloserine, amongst others.

The Company has filed 4 new DMFs in the current financial year.

Outlook of API Business

The Company continues to enjoy significant traction in its core APIs. The growth of the new DMF products is a major initiative in FY 16 to enhance the sales and Profitability.

While North America, Europe and Japan continue to be key markets for your Company, other markets such as Korea and Brazil have presented new opportunities thereby opening more avenues for your Company.

Contract Research and Manufacturing Services Business

Your Company has an active presence in CRAMS in both APIs and Formulations.

API CRAMS includes Shasun Pharma Solutions Limited, UK and Shasun Pharmaceuticals Ltd, India.

Formulations CRAMS includes finished dosages facility in Pondicherry, which caters to contract manufacturing of finished dosages for Innovator, Emerging and Generic pharma companies. Formulation research centre in Pondicherry provides support for development of new formulation products.

During FY15, CRAMS consolidated business registered 43% of the total consolidated revenue of the Company.

Shasun Pharma Solutions Limited, UK (SPSL)

Operations-SPSL

During FY 15, SPSL has continued to focus on its core strengths of Health, safety, environmental and quality compliance. Providing innovation together with continuous improvement to satisfy our customers’ needs and positioning us as a preferred service provider to the pharmaceutical industry

The company has invested around GBP 2 Million at the Dudley facility to enhace capability to support the introduction of new projects.

Sales-SPSL

During FY 15 SPSL substantially recovered from the loss of a key project within the portfolio. The unexpected reduced performance of the product in the market place resulted in a sharp reduction of API demand by the customer. Financial impact of this loss was minimised through acquisition and delivery of new business.

SPSL achieved sales of GBP 22.90 Million and posted a Loss after tax of GBP 2.67 Million.

Market interest continues to be driven by our key strengths - technical expertise and capability, speed of response, good facilities, our people and our reliability.

SPSL has a unique ability to handle both highly complex and hazardous projects. A world class hazard evaluation capability which is fully integrated into our process development group and project management process allows early understanding and appropriate measures to ensure safe and reliable delivery of customer requirements. This approach is seen as an advantage over our competitors by many of our customers.

SPSL Outlook FY 16

In readiness for FY 16, SPSL management recast the vision and strategy for SPSL. The key focus being sustainable business growth through protecting base business, nurturing the growth opportunities within the pipeline and having clear plans to address new and growing market opportunities such as controlled drugs, animal health, hazard evaluation services and potent compound manufacture. This coupled with a clear go to market and sales strategy is already gaining market traction.

CRAMS SBU in India

On the Contract Manufacturing front in India, your Company has posted a growth of 27% by successfully capitalising on the global growth in the contract manufacturing business

Finished Dosages Business - Formulations

Your company offers the services of development and manufacture of finished dosages to both Innovator and generic companies worldwide. The division achieved a growth of 31% over the previous year.

The Finished Dosages facility has undergone successful inspections by various regulatory bodies such as USFDA, Brazilian ANVISA, UK MHRA, WHO GMP and Mexico- COFEPRIS.

Outlook of Formulation

Finished Dosages Business remains a major opportunity for the Company to increase and diversify its revenue base. With the increased expansion capacity and expected approvals on newer Products, the Formulation Division is planning to increase its revenues. During this period your company has field 5 ANDAs for approval. In addition to this, the company has invested by acquiring the NUPRIN brand to enhance it’s global pain management product portfolio on it’s own and also the company has acquired controlled release technologies for Ibuprofen finished dosage form.

Consolidated Financial Review

The Company has registered consolidated Gross revenue of Rs. 13288.58 Mn as compared to the previous year figure of Rs. 12356.22 Mn.

Raw material cost as a proportion of total net income increased to 51.69% in FY15 from 50.38% in FY14. Other operating expenses increase in line with increase in sales growth.

The Company has achieved PAT of Rs. 237.55 Mn. in FY15 as compared to the previous year figure of Rs. 302.11 Mn

Forex forward contracts

During the year there are no pending forward contracts.

Internal control and systems

The Company deploys internal control procedures commensurate with the size and nature of its business. The aim of these procedures is to ensure efficient use and protection of the Company’s resources, accuracy in financial reporting, and due compliance with statutes and Company procedures. Well-defined individual roles and responsibilities, as well as an effective feedback flow, facilitate effective monitoring and a responsible internal audit. Regular Audit Committee Meetings are held where the statutory auditors as well as the internal auditors participate and the internal audit reports are thoroughly discussed and reviewed.